At the year-end, our unused bank facility available to fund
acquisitions stood at GBP23.8m (2013: GBP25.0m). This was reduced
to GBP18.3m in February 2015, following the drawdown of GBP5.5m 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 GBP5.5m plus the net asset value, with deferred
payments totalling up to GBP6.0m over the next two years dependent
on MacuShield's sales growth. The acquisition should bring an
initial gross profit contribution of about GBP1m 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 GBP9,000
raised by eight employees who cycled from Bristol to Bordeaux in
aid of PROPS, a charity supporting young people with special needs;
and GBP2,500 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.
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