Alliance Pharma Regulatory News (APH)

ALLIANCE PHARMA PLC

("Alliance" or the "Group")

Results for the year ended 31 December 2014

Alliance Pharma plc (AIM: APH), the speciality pharmaceutical company, is pleased to announce its results for the year ended 31 December 2014.

Financial Highlights

· Revenue £43.5m (2013: £45.3m)

· Pre-tax profit £10.8m* (2013: £12.0m)

· Adjusted EPS 3.36p* (2013: 3.82p)

· Free cash flow £10.3m (2013: £8.2m)

· Net bank debt £21.1m (2013: £25.2m)

· Low gearing with Debt to EBITDA ratio of 1.6 times

· Proposed dividend:

o Final dividend up 10% to 0.667p per share (2013: 0.605p)

o Full year dividend up 10% to 1.000p per share (2013: 0.908p)

* Before exceptional item, being impairment of Pavacol-D intangible

Note: 2013 figures restated for impact of adopting IFRS 11 Joint Arrangements

Operational Highlights

· Irenat™ acquisition in January 2014

· MacuShield™ acquisition in February 2015

· Hydromol™ continues to demonstrate good growth, achieving year on year sales growth of 15%

· Ashton & Parsons Infants' Powder™ sales achieve very significant growth to £1.4m (2013: £0.4m) as a result of product redesign and improved supply

Commenting on the results, Andrew Smith, Alliance's Chairman, said: "In 2014 Alliance performed well, taking only a modest dip in sales and profits in a challenging year, which underlines the resilience of our business. We enter 2015 well placed for resumed growth. The recent acquisition of the fast-growing MacuShield brand together with the expected return of ImmuCyst™ in the second half of this year add to the growth drivers of our portfolio."

For further information:

Notes to editors:

About Alliance

Alliance, founded in 1998, is an AIM listed speciality pharmaceutical company based in Chippenham, Wiltshire, UK. The Company has a strong track record of acquiring the rights to established niche products and owns or licenses the rights to more than 60 pharmaceutical products and continues to explore opportunities to expand the range.

Alliance joined the AIM market of the London Stock Exchange in December 2003 and trades under the symbol APH.

STRATEGIC AND BUSINESS REVIEW

In 2014 Alliance performed well, taking only a modest dip in sales and profits in a challenging year, which underlines the resilience of our business. We enter 2015 well placed for resumed growth. While sales of our cyclical toxicology product reduced to a minimal level and Nu-Seals™ continued its moderate decline arising from the Irish government's moves on generic substitution, much of the adverse impact was offset by further solid growth in the rest of the portfolio. This growth will be augmented in 2015 by the acquisition of MacuShield, completed in February 2015, and the expected resumption of ImmuCyst sales in the second half of the year.

Adoption of IFRS 11 Joint Arrangements

The Group was required to adopt International Financial Reporting Standard 11 Joint Arrangements in 2014. Alliance's joint ventures, both of which are in China, are now accounted for using the equity method which only brings the net result into the P&L. Previously they have been accounted for using proportional consolidation which incorporated our share of sales and costs separately. Prior year figures have been restated accordingly and all references herein to prior year numbers are to the restated figures. More details of the impact can be seen in Note 11.

Trading performance

Excluding joint ventures, revenue reduced by 4% to £43.5m (2013: £45.3m). The decline was due to two products: sales of our cyclical toxicology product fell in line with the low part of its 2½-year replacement cycle and the loss of the tender; and Nu-Seals sales reduced to £2.5m under pressure from generic competition. Together, these products accounted for a revenue reduction totalling some £4.3m. This was substantially offset by healthy revenue growth of £2.5m (11%) in the rest of our portfolio.

The underlying growth was led by another double-digit performance from Hydromol, with sales up 15%. We have grown annual sales of this brand from just under £1m when we acquired it in 2006 to over £6m in 2014. Sales of the Opus™ stoma care products grew by 10% to £4.3m.

With supplies of Ashton & Parsons Infants' Powders now free of production constraints, sales are developing well - more than tripling to £1.4m in 2014. Gelclair™, our treatment for oral mucositis, continued to grow well, with sales up 10% to £1.3m and MolluDab™, the molluscum contagiosum treatment that we launched in 2013, made further good progress in this niche market.

We were also pleased with the performance in 2014 of our recent acquisitions - Lypsyl™ in December 2013 and Irenat in Germany in January 2014. With sales of £0.8m, Irenat continues to show the stability that made it an attractive first product for our German business. With Lypsyl we have halted the decline experienced under its previous owners. To increase sales we have begun to capitalise on its still-substantial consumer recognition and are currently researching market perceptions and developing our strategy for investment in order to breathe new life into this well-known brand.

We have been unable to supply ImmuCyst, our bladder cancer treatment, since production was halted at Sanofi's manufacturing plant in Canada in mid-2012. ImmuCyst had peak sales of over £4m per annum before production was suspended. Regulatory validation of the refurbished production facility is taking significantly longer than initially anticipated, and we now expect to resume sales in the second half of 2015. Market feedback indicates continued demand for the product, and we expect to rebuild substantial sales over time as hospitals revert to ImmuCyst. Indeed we are aware that the only licensed competitor is not currently able to supply the full market demand. We will do all we can to bring ImmuCyst back as soon as possible. In the meantime, we are at an advanced stage in the process to consider our claim for profits lost during the extended manufacturing hiatus.

Generic competition continues to erode Nu-Seals sales in Ireland. The Irish regulator has still not adjudicated on which low-dose aspirin products should be included on the list of interchangeable medicines that would permit pharmacists to dispense generic products against branded prescriptions. We have submitted a strong case to the regulator for Nu-Seals to be kept off this list but if Nu-Seals is eventually included, sales are likely to fall substantially, which may well lead to a non-cash impairment charge against the £9.1m intangible asset.

The planned hand-back of nine products to Novartis, which we had been distributing since the origin of the company in 1998, was completed in 2014. It had been phased over the past two years, and the impact is low as these products generated only £0.3m of gross margin for us in 2014.

Financial performance

Pre-exceptional pre-tax profit was £10.8m, down 10% from 2013. However, excluding the cyclical toxicology product, underlying profit from the rest of the portfolio showed a healthy increase of 15%. Adjusted earnings per share were 3.36 pence, down from 3.82 pence in 2013.

Gross margin for the full year was 57.5%. This was lower than the 60.4% achieved in 2013, which was flattered by the peak sales of the higher-margin toxicology product, but higher than the 56.9% achieved in 2012. We expect to sustain margins at about the 2014 level going forward.

Operating costs were well contained at £13.1m (2013: £13.5m). We made further modest savings on central overheads, but most costs remained broadly stable. Marketing investment remained broadly flat, although we continued to shift the emphasis gently from our dermatology and secondary care products in favour of our growing OTC consumer portfolio.

Production issues have halted the sales of Pavacol-D™, our cough-suppressant medicine. We are currently looking at how to bring this brand back to market but there is a significant risk that it will not be economical to do so and therefore the related £0.6m intangible asset has been written off in full. Apart from this one-off non-cash impairment charge, the impact on profits is not significant as sales of Pavacol-D have been very low for the past few years as a result of various supply issues.

The reduced sales contribution from the cyclical toxicology product resulted in a lower operating profit before exceptional items of £11.8m (2013: £13.3m). This represented 27.1% of sales (2013: 29.4%) - still a very healthy percentage.

Our financing costs reduced for the sixth consecutive year to £1.0m (2013: £1.3m). This was as a result of the conversion of the last of the convertible loan stock in 2013 and the reduction in net bank debt from £25.2m at the start of the year to £21.1m at the year-end. Year-end debt to EBITDA gearing remained flat at 1.6 times.

Alliance is a highly cash generative business, and 2014's free cash flow of £10.3m was well ahead of the £8.2m achieved in 2013. £3.8m of this was reinvested in acquisitions during the year and £2.4m was returned to shareholders via the dividends.

At the year-end, our unused bank facility available to fund acquisitions stood at £23.8m (2013: £25.0m). This was reduced to £18.3m in February 2015, following the drawdown of £5.5m as the initial payment for MacuVision Europe Ltd, which brought us the MacuShield brand.

Earnings per share

Adjusted basic EPS was 3.36p (2013: 3.82p), and adjusted diluted EPS was 3.34p (2013: 3.68p), the reduction mainly reflecting the impact of the toxicology product dropping to the low point of its cycle and the tender being lost. Including the Pavacol-D impairment charge, basic EPS was 3.17p (2013: 3.82p). During the year the number of shares in issue remained virtually unchanged at 264.1m.

Dividend

We are maintaining our progressive dividend policy, recommending a final payment of 0.667 pence per ordinary share to give a total for the year of 1.0 pence per share. This represents a 10% increase on the previous year's dividend, while still maintaining ample earnings cover of over three times. The final dividend will be paid on 15 July 2015 to shareholders on the register on 19 June 2015.

Strategy

The essence of our model is our long-established 'buy and build' strategy, which is underpinned by a well balanced portfolio. We have a healthy segment of brands in which we invest for growth. Conversely we also possess many brands that are well established in their market niches and will maintain their sales for many years with little or no promotion. This balance allows us to invest in marketing to develop growth, whilst at the same time delivering good cash generation and profitability. As examples, we purchased Lypsyl in December 2013 for the turn-around opportunity to deliver growth; Irenat in January 2014 for its stability and cash generation without the need for promotion; and MacuShield in February 2015 for its strong ongoing growth and the opportunity for us to grow the brand further across many territories.

In recent years we have been broadening the growth element of our portfolio to include consumer healthcare products. These typically offer substantial organic growth, whilst only requiring modest promotional investment. Our increasing experience in this area indicates that certain types of consumer product can do well without major marketing expenditure. And these consumer products help to balance risk across the portfolio because they are not exposed to government price controls.

In February 2015 we acquired MacuVision Europe Ltd, a UK-based business selling MacuShield, a treatment for dry age-related macular degeneration and other eye conditions. The initial consideration was £5.5m plus the net asset value, with deferred payments totalling up to £6.0m over the next two years dependent on MacuShield's sales growth. The acquisition should bring an initial gross profit contribution of about £1m a year and sales are growing rapidly, up 51% in 2014.

MacuShield is a once-a-day capsule that contains meso-zeaxanthin, lutein and zeaxanthin - three carotenoids, or pigments. These three carotenoids are naturally present in the eye, where together they are known as macular pigment. Macular pigment helps to protect the eye by neutralising free radicals and absorbing blue light, which can damage the retina. With age, and particularly in dry age-related macular degeneration and other eye conditions, the level of macular pigment is reduced creating the need for a dietary supplement to boost the level of pigment in the retina.

Around 75% of MacuShield sales are generated in the UK, with the remainder being sales to international distributors, mainly in Europe.

We continue to seek attractive acquisition opportunities across a wide range of products and markets. Over time we would expect to maintain a balance across the portfolio - between prescription and consumer products, and between promoted and non-promoted products.

Recently, we have increased the proportion in our portfolio of both promoted content and consumer brands. Following the integration of the MacuShield brand, promoted products will have risen to about 40% of sales, being equally divided between prescription and consumer.

There is likely to be to a measured increase in marketing investment over the next few years, although this will not be at the expense of profitability. In 2015 the focus will be on the re-introduction of Immucyst; continuing the rapid growth of MacuShield; the continuing growth of Hydromol; and the commencement of promotion behind Ashton & Parsons Infants' Powders.

In the first half of the year we are testing both TV advertising and direct mail campaign options for Ashton & Parsons Infants' Powders so that we can maximise the return on the spend that is scheduled for later in the year.

Extensive work on re-positioning the Lypsyl brand will continue through 2015, with a view to increasing the marketing investment in 2016.

We have maintained our focus on M&A. In January 2014 we acquired Irenat, a well-established prescription brand in Germany used in thyroid conditions. This was our first acquisition in Germany since placing a Country Manager there in 2012. It means that our German business is now trading profitably.

Also in January 2014, we took a 20% minority stake in the Shanghai based, Synthasia International, a company that markets a high-quality Swiss infant milk formula product in China. This transaction has a progressive arrangement whereby Alliance can increase its share to 100% over several years at pre-determined multiples. Progress at Synthasia was delayed initially by a Chinese government review of all imported formula milk products, which, whilst problematic in the short term, had the benefit of removing many competitors from the market.

Our businesses in France and Germany are both progressing well and we are seeing a good flow of acquisition opportunities.

Team

In May 2014 we welcomed Andrew Smith as our new Non-Executive Chairman, following Michael Gatenby's retirement. Andrew knows the business well, having been a Non-Executive Director since 2006.

Two new Non-Executive Directors have joined the board in the past year. David Cook joined in April 2014, taking over the Chair of our Audit Committee from Michael Gatenby, and Nigel Clifford joined in January 2015 following the retirement of Paul Ranson in December 2014. David is currently Chief Financial Officer and Chief Business Officer of Biotie Therapies Corp. and brings extensive knowledge and experience of the pharmaceutical industry. Nigel has been Chief Executive of Procserve Holdings for the past three years and is about to move to become Chief Executive of Ordnance Survey. He brings broad business experience with significant exposure to European and international markets.

Our Finance Director, Richard Wright, has indicated his intention to leave Alliance at the end of May 2015. We are grateful to Richard for his significant contribution to the business over the past eight years and wish him well for the future. The process to recruit a replacement is under way.

To manage the growing number of consumer products in our portfolio, we appointed Alex Duggan in January 2015 as Head of Consumer Healthcare. Alex has over 20 years of experience as an entrepreneur in consumer healthcare and has launched several leading products in the UK and internationally, including Snoreeze and Wartner.

Charity

We continue to donate products regularly to International Health Partners, a charity that distributes medicines to doctors in the world's neediest areas.

Alliance also supports its employees in their fundraising activities for local charities. In 2014 this included £9,000 raised by eight employees who cycled from Bristol to Bordeaux in aid of PROPS, a charity supporting young people with special needs; and £2,500 raised by employees for the Wiltshire Air Ambulance.

Outlook

In 2015 and 2016 we expect to overcome the headwinds that have beset us in recent years, namely: the suspension of ImmuCyst production in 2012; the generic threats to Nu-Seals in Ireland as part of the generic substitution initiative; and the emergence of new competitors to our cyclical toxicology product.

ImmuCyst is expected to return in the second half of 2015 after an absence of three years. Our market intelligence is that clinicians eagerly await its resumed availability. Additionally in the hospital sector we expect continuing good performance from Gelclair in oral complications arising from cancer treatments and we expect the Opus range of stoma products to continue to sell well.

The long-running positive trend behind Hydromol, our favoured range of emollients for patients requiring skin rehydration, is also expected to continue.

In consumer healthcare, we have several growth initiatives. We aim to develop further the strong franchise behind Ashton & Parsons Infants' Powders, which is the number one pharmacy brand in its sector. With Lypsyl, following brand re-positioning work being undertaken this year, we plan to re-invigorate this well-known brand in 2016. Finally we are very excited by the significant potential afforded by MacuShield, which is recommended by eye specialists for use in dry age-related macular degeneration.

On the M&A front we are encouraged by the deal flow we are currently experiencing, for which we have ample financing headroom.

Consolidated Income Statement

*Restated due to the adoption of IFRS 11, please see note 11.

Consolidated Statement of Comprehensive Income

Consolidated Statement of Financial Position

*Restated due to the adoption of IFRS 11, please see note 11

Consolidated Statement of Changes in Equity

Consolidated Cash Flow Statements

*Restated due to the adoption of IFRS 11, please see note 11

1. Basis of preparation

The financial information set out in the announcement does not constitute the Group's statutory accounts for the year ended 31 December 2014 or 31 December 2013. The auditors reported on those accounts; their report was (i) unqualified, (ii) did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain statements under section 498 (2) or (3) of the Companies Act 2006. The statutory accounts for the year ended 31 December 2014 have not yet been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 December 2013 were delivered to the Registrar of Companies as published on the Group's website on 10 April 2014.

2. Finance costs

Notional interest relates to the unwinding of the discount applied to provisions.

3. Taxation

Analysis of charge in period.

4. Dividends

The proposed final dividend of 0.667 pence per share for the current financial year was approved by the Board of Directors on 24 March 2015 and is subject to the approval of shareholders at the Annual General Meeting. The proposed dividend has not been included as a liability as at 31 December 2014 in accordance with IAS 10 Events After the Balance Sheet Date. The interim dividend for the current financial year was paid on 15 January 2015. Subject to shareholder approval, the final dividend will be paid on 15 July 2015 to shareholders who are on the register of members on 19 June 2015.

5. Earnings per share (EPS)

Basic EPS is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year. For diluted EPS, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares.

A reconciliation of the weighted average number of ordinary shares used in the measures is given below:

The adjusted basic EPS is intended to demonstrate recurring elements of the results of the Group before exceptional items. A reconciliation of the earnings used in the different measures is given below:

The resulting EPS measures are:

6. Intangible assets

7. Trade and other receivables

8. Trade and other payables - current

9. Cash generated from operations

10. Cash and cash equivalents

11. Impact of IFRS 11

The effect of IFRS 11 on the December 13 comparatives is shown below: