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Edited Transcript of APH.L earnings conference call or presentation 26-Mar-19 11:00am GMT

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Full Year 2018 league Pharma PLC pay Call

Chippenham Mar 29, 2019 (Thomson StreetEvents) -- Edited Transcript of league Pharma PLC pay conference summon or presentation Tuesday, March 26, 2019 can 11:00:00am GMT

TEXT translation of Transcript

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Corporate Participants

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* Andrew Timothy Franklin

Alliance Pharma plc - CFO & Executive Director

* Peter Jonathan Butterfield

Alliance Pharma plc - CEO & Executive Director

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Conference summon Participants

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* Andrew sign Whitney

Investec beach plc, inquiry piece - Analyst

* Edward Thomason

Nplus1 Singer major Markets Limited, inquiry piece - inquiry Analyst

* Julie Simmonds

Panmure Gordon (UK) Limited, inquiry piece - Equity inquiry Analyst of Healthcare

* Martin David Hall

Hardman & Co. - major of Research

* Sally Anne Taylor

Numis Securities Limited, inquiry piece - Director & Healthcare Analyst

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Presentation

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Peter Jonathan Butterfield, league Pharma plc - CEO & Executive Director [1]

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Okay, good morning, everybody. I study we'll employ going. because those of you that don't learn me, I'm Pete Butterfield, CEO of Alliance. I'm joined by Andrew Franklin, CFO of Alliance. And big ought cry on consequently many of you here actually, and thank you because joining us because our total year results presentation. consequently today's conference is being webcast. consequently can the purpose of the presentation, if you consume any questions, there'll exist a roving mic because you ought ask any questions that you have, besides during ought those joining us online, big welcome, and thank you because your advantage can the company because well.

So allow me receive you over the presentation. Obviously, I'll jog over the disclaimer entire can there. We're going ought receive you over affair overview first, impartial ought class of foundation you, memorize you of where league is and the excursion that we've been above can the final 3 or 4 years, deep dive into the financials with Andrew, then I'm going ought give you a fragment of an hope because the business, which is something we haven't done ago can these types of presentations, besides during impartial give you an concept of our -- where we are now and our eyesight because the affair can the median vocabulary because sturdy impartial ought receive over that too, and then we'll consume a hasty summary and wrap up.

So can condition of 2018 our affair overview. We made genuine significant progress can 2018 can condition of growing the business. Three key things that situate out because me operationally were the Nizoral acquisition of -- from Johnson & Johnson can the Asia Pacific district completed above that. That was big halfway over the year. Vamousse, we completed the integration of Vamousse final year and that's done very, too sturdy indeed and that's allowed us ought setup our U.S. office because well, which has been too exciting because us. And then accurate can the purpose of the year, we launched Xonvea, the first treatment because nausea and vomiting can pregnancy because 30 years can the U.K. consequently I'm going ought give you an update above entire of those.

Underlying that, the affair is growing very, too well. consequently 22% growth, with -- including acquisitions, 4% organic underneath; increasing the dividend, which is too sturdy covered; and the hallmark of the affair continued tough money generation has continued final year. I'll aid a small fragment by attach the tactical stock builds that we did consume been sturdy signposted, besides during that has left us very, too sturdy situation because both Brexit and the Falsified Medicines Directive because well. consequently a big very, too busy year because us, besides during too successful ultimately.

Now because those of you a small less intimate with Alliance. because a business, we are a growing international health worry business. We're a too highly able organization that's been built can 20 years, too experienced management team, big trade force. And we've because sturdy got a too sturdy invested infrastructure because well. We are a beneficial money generative and dividend paying company growing too sturdy because well. because I say, big money conversion, and our leverage is currently can 2.3x, besides during that's coming down, and Andrew will confront above that because we confront through. And our growth tactic has really grow over a affair -- a proven affair model, both organic growth can the portfolio, supplemented by targeted acquisitions can the years.

There's no R&D chance can the business. There's very, too small patent chance can our business. There's no manufacturing. consequently that promotes a too money generative company. And we -- can the years, we've tear the organic growth can the company over from our International Stars, and we'll do a small dive above each of those, the 5 of those: Kelo-cote; Nizoral; MacuShield; Vamousse; Xonvea. besides during that's supported by a too highly money generative Local brands business, which has done sturdy final year. I'll dive into that can a fragment more detail because we confront through.

On peak of that, because I say, we consume supplemented that over too strategic acquisitions. We got a big M&A team in-house. We've done can 35 deals can 20 years. And we are able ought become the acquisitions that we brought in. We've got some big examples of that can our portfolio, and those are continuing because we summary ought grow. Our geographic attain has changed extensively, I'll receive you over that journey. And we're because sturdy too diversified can condition of both impartial and can condition of product, consequently that helps spread chance from can 90 products can our portfolio.

I study it's because sturdy significant moving over this slip ought impartial memorize where we've grow from because a business. consequently because we stood here can 2015, we were turning can about GBP 45 million, GBP 50 million. The affair has a 3-year CAGR now, both over organic and the acquisition growth of about 37%. And the portfolio has changed because well. consequently predominantly, we were a Local brands business, with 1 International planet about can that time. And we've really moved the needle above that. consequently cottage those Local brands very, very, too significant ought us, besides during the proportion can our International planet brands, which are providing pretty a fragment of growth, has because sturdy increased significantly. And our routes ought impartial consume changed. consequently we've changed from being predominantly a prescription-based business, an Rx business, which is big defensive money flow. Occasionally growing, sometimes declining into a more balanced portfolio of 50% now is can the Rx, with 24% can OTC and 25 -- 26%, sorry, can OTX, the universe where a health worry provider will recommend the manufacture and then a patient will proceed and buy out of pocket.

And because sturdy I mentioned our geographic reach. We've changed enormously because sturdy can time too. consequently we've changed from can 2015 being predominantly a U.K. and Republic of Ireland business, can 88% can those markets, into something with a much more international flavor. consequently now 42% coming out of the U.K.; mainland Europe making up 20%; 34% can our international affair driven heavily by our Asia Pacific region; and because the first time, with 4% of sales coming out of the U.S., very, too exciting because us. We employ can 200 nation can our 9 offices about the world.

So that's impartial ought orientate you and convey everybody aid ought the figure of the affair because it stands today. Andrew is going ought receive you over 2018 financials, and then we're going ought dialect nearly the products can a small fragment more depth and because sturdy the hope because the affair because well.

So I'm going ought hand can ought Andrew ought receive you over the results.

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Andrew Timothy Franklin, league Pharma plc - CFO & Executive Director [2]

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Thanks much indeed, Pete, and good morning ought everybody. consequently I study we've -- similar ought start, consequently we had a too good originate because the year. Sales of GBP 124 million. You can cry on 22% up, 23% above a constant-currency basis, and that's been drawn and developed over the growth within our International planet brands, both from Kelo-cote and because sturdy over Nizoral because the first -- because the second 6 months of the year. Excluding acquisitions, we grew 4%.

Just a hasty language about see-through revenue versus statutory revenue. We consume purchased the rights because Nizoral from Johnson & Johnson. And whilst those licenses are cottage with J&J, they are selling it above our behalf and that's included can the see-through revenue. The statutory revenue shows the margin we create above those products. Now can the next 2 years, the licenses will change from Johnson & Johnson over ought Alliance, and consequently exist a fragment of a mingle way where we're selling it direct and over J&J, which will grow over the statutory revenue. consequently the see-through revenue give a delightful compatible progposal above the ongoing base because we confront over the transition.

Gross margin because we've seen ago has improved, up 40 base points, again coming over with the International planet brands, which consume principally a higher entire margin and EBITDA and both PBT increasing 19% and 17% and that's hind the investment we're putting into the growth of these International planet brands.

Just looking can the action can the final 4 years. appear can the CAGRs, can that you can cry on that from a growth perspective from revenue 37% up from a revenue perspective, besides during because sturdy from an EBITDA and PBT, both can the too level. consequently again, good leverage coming over can the P&L.

EPS first time is can 4.5p, consequently 4.54p, up 12p -- up 12% from the previous period. And that's -- from that flat of growth, we're looking ought multiply our dividend 10%, consequently the final dividend will exist impartial below 1p, consequently 0.977p, making a total year dividend of impartial below 1.5p or 1.464p. consequently again continuing with that flat of dividend growth, which is more than 3x covered earnings.

Pete's already mentioned nearly money brook can GBP 16.1 million, too pleased where that's performed. And that's because sturdy net of this tactical stock vertical we lay over because Brexit and because the new directive, Falsified Medicines Directive, and the prelaunch price because Xonvea.

And moving down ought net debt. We borrowed an additional GBP 28 million ought separate fund the Nizoral acquisition. Whilst net debt indeed grew GBP 13.5 million, again that shows the flat of money generation within the affair coming down from GBP 28 million down ought GBP 85.8 million. And that's shown within our leverage reducing from our total year final year and because sturdy from our half year down ought 2.33x, again that compares favorably with our covenants, which is situation can 3x.

A concentrate above the P&L. This shows our underlying results. I've shown can the next slip because completeness, the non-underlying items. consequently this is focused above those that summary within the business. And revenues, because I say, up 22% coming over from the growth within Kelo-cote, up 68%; because sturdy got Nizoral because the total -- because the 6 months mature we've owned it, impartial below GBP 11 million; besides during because sturdy tough growth coming over with regards ought Vamousse, which grew 18% above a constant-currency base below GBP 6 million. The multiply we consume within the operating price reflects the flat of cost we're putting hind those International planet brands ought drive that, besides during because sturdy included can that because this year is the transition service price with Johnson & Johnson and because sturdy the prelaunch price because Xonvea. besides during because a percent of sales, 38.5% there out, 31% ought sales which is too although ought 2017 can 30% ought sales. can an EBITDA perspective, again growing nicely can 19% can GBP 32.4 million. And can that sweet situation where we state we similar ought exist within that 25% ought 30% range.

Depreciation and amortization includes noncash write-down of impartial below GBP 2 million relating ought a furnish business because MacuShield. And now breaking away from that allows us ought now buy the active ingredients about the globe. And actually, we can -- we ought exist able ought drive additional price savings from that freedom ought purchase. And that is -- and the price of that GBP 1.9 million has been offset by an match adverse because a reduction can deferred consideration payment shown within financing, the financing rope there. consequently that's the major reduction above final year.

When we appear can advantage ago tax can GBP 28.1 million, again growing a nice, sturdy flat can 17% above previous period.

I mentioned ago we'll fragment the non-underlying items. consequently these are sturdy documented can our half year results. consequently I won't exist above them can this point, there's no genuine -- no change from that was disclosed can the half year. I study the sole point impartial ought correspondence here is the effective tax assess of 19.6%, broadly can rope with where we've been because final year 2017. consequently it's going ought exist about that 20% sign going forward. because final year, 17%. because you can recall, the rates within both France and the U.S. reduced and that indeed generated a tax benefit, a tax faith within our P&L. besides during actually, if we strip that out, because you'll cry on can the next slide, from EPS, that blame used to consume been about GBP 4.8 million, which again, because I say, comes ought an effective tax assess of impartial below 20%.

On an pay per fragment basis, when we appear can comparing above a like-for-like basis, we generated because '17 an EPS of 4.05p. And from an adjusted base underlying because this year, 2018, a 4.54p, consequently up 12% above the basic, besides during because sturdy cottage double-digit growth when we appear can it above the -- above a diluted basis.

Cash brook remained tough within the business, and we're really pleased can the way which we consume ought churn the money over with -- over Alliance. We had an outflow can the final year, can 2018 final year, of about nearly GBP 8 million. And separate of that relates ought impartial the overall growth of the business, besides during because sturdy the tactical stock vertical we lay can because the Falsified Medicines Directive and because sturdy Brexit, besides during it because sturdy includes the H2 net allowance due from Johnson & Johnson. That was received during the first area this year can rope with the transition service agreement. besides during because you can cry on from a tax payment of impartial below GBP 4 million advantage can CapEx, we generated GBP 16 million worthy of free money flow. Now during 2019, we expectation that multiply ought exist higher than -- the money brook ought exist higher than 2017 with GBP 22 million consequently north of that, because you cry on a total year's money brook coming from Johnson & Johnson. And we're expecting because sturdy the modest stock vertical because sturdy ought unwind relating ought Brexit because we proceed over June this year, besides during we shall see.

On the remains sheet, the sole key movements really above here relating ought the multiply can our intangibles, relating ought the GBP 60 million acquisition we had from Nizoral. The mutual ventures is now down ought 0 because we've taken the impairments and write-offs because those can the half year. And working capital, we state the movements grow over chiefly about the multiply can inventory, besides during because sturdy the transition service fee. And within deferred consideration, that GBP 0.5 million there relates ought final payment ought Duchesnay because the commercialization of Xonvea within the EU. consequently that then gets the second nation is commercialized because Xonvea, then we'll exist paying that GBP 0.5 million out.

Net debt increased from final year GBP 13.5 million from GBP 72 million ought GBP 85.8 million, besides during this cross trade shows how that's worked over the year. consequently we purpose -- consequently we started can 2.46 leverage, and we drew down the GBP 28 million ought separate fund the acquisition from Nizoral. And then because we confront through, we then received some funds because the divestment of our mutual dare can China of impartial below GBP 4 million, the final money settlement from Sinclair. And that overall makes up our net debt originate ought impartial below GBP 86 million and from a leverage perspective can 2.33.

Now over the money generation coming over the affair because this year 2019, we expectation that ought exist sub-2 because we proceed over the second half of this year, which is again, because I say, too comfortable within where we are with our covenants, which is situation can 3x.

Okay, Pete?

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Peter Jonathan Butterfield, league Pharma plc - CEO & Executive Director [3]

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Thanks. Thank you, Andrew. We'll elect up questions can the purpose of the presentation and impartial cause going. consequently I expectation ought receive you over the brand action can a small fragment more depth, talking nearly the stars and then the Local brands and then because sturdy give you an hope because the affair moving forward.

So clearly, a too tough action above tactic with our planet brands. I study it's significant ought correspondence that entire of these brands are because sturdy growing ahead or above a organize can condition of their growth rate, and I'll proceed over each of those individually.

The Local brands, because we entire know, they had a slightly softer half 1 final year. Half 2 was up 9% above half 1. And we cry on those very, too much stabilizing because we confront through. consequently down 5% final year. We expectation those ought exist firm can 2019. And there's a class of reasons hind those, which we documented can the first half can there can the RNS because well. consequently I won't exist above those because sturdy much, besides during I'm pleased with where the trajectory because those Local brands is sitting now.

In condition of our operational highlights because well, impartial ought shut this separate of the presentation. Clearly, the acquisition of Nizoral can the Asia Pacific region, very, too significant ought us giving us exposure ought a fast-growing district with a big product. We're continuing ought vertical our genius and scale within our organization. Our ERP system will proceed alive this year. That's sturdy above its way now. And that will equip us with a genuine scalable platform because we summary our growth into the future. We're delighted ought employ Xonvea, no sole approved, besides during launched here can the U.K., adding that fifth International planet brand ought the portfolio. We've been house our global infrastructure because well. consequently we've upscaled and upscaled our offices can Shanghai and Singapore ought receive above Nizoral and create sure we're sturdy placed purpose impartial because that and opening our offices can the U.S. We consume a team of 5 there dedicated ought the Vamousse brand and that has responded too sturdy ought our promotional efforts.

We finished our strategic repositioning can China can condition of getting out some mutual ventures that weren't working because us into our possess affiliate now. And China is our biggest impartial because Kelo-cote with our largest distributor out there. It's because sturdy significant because the Nizoral brand because well. consequently we're really sturdy placed ought regulation those distribution agreements now over our possess affiliate.

And we've also, you can consume seen, strengthened our board because well. consequently we brought above 2 new nonexecutive directors because the company continues ought grow. Delighted ought greet Jo Le Couilliard from GSK ought our board. She's got a wealth of experience, obviously, can commercial pharma, besides during some genuine deep territory experience can the Asia Pacific region, and because sturdy ought Richard Jones. And Richard joins us today hind the room, besides during some of you can learn Richard. He's worked above both the impartial side, and he is because sturdy an Operational CFO because well. consequently really delighted ought greet those 2 ought the board. I study they've been big additions ought our team indeed and appear deliver ought working with them moving forward.

So can condition of the International planet brands, we'll jog over those. Kelo-cote, clearly, had a standout year final year. Kelo-cote is our patent protected wound reduction treatment that we acquired can 20 -- can the purpose of 2015 from Sinclair. And impartial ought memorize you, that asset was doing GBP 7.5 million when we acquired it. This year, it did GBP 22.5 million.

Want ought give you a fragment more insight into the purpose markets because well, impartial consequently you can learn the class of size of impartial that we're playing in. consequently globally, we study that, that organize is worthy about GBP 600 million. We are sturdy outstripping that organize growth. consequently we are taking fragment can that market, which is great. when we got the asset, we came can ought the major Markets appointment and we said, "Oh, maybe a class of GBP 20 million brand, might exist GBP 25 million." We're revising our future brand latent ought GBP 30 million plus. And clearly, there is a convict of headroom because Kelo-cote ought summary growing.

What drove final year? Well, we had good growth can the Asia Pacific region. We had good growth can China. Our European affair because sturdy opened up some new distribution channels, which is grand because well. And we've worked very, too collaboratively with our partners. We brought above a new distributor can Thailand because well. consequently there is a mingle of things going above with Kelo-cote. besides during what we are doing is maintaining our flat of marketing aid hind there. We were the do sponsor of a too significant conference can China, the G-Scar Society, which promotes best exercise can wound management globally. We because sturdy had our first distributor conference where we got entire our distributors about the world. We had them together can Prague final year and that worked very, too sturdy ought fragment best exercise and because sturdy ought cause distributors interested and invigorated with a brand similar Kelo-cote. consequently that's going very, too sturdy because us. It won't become 68% each year, I expectation it would, besides during it of degree got a good growth trajectory and too much we will summary ought concentrate above it.

So because 2019, we're obviously increasing our penetration can those existing markets. We're going ought summary our geographic expansion. It is available can on 60 territories worldwide. consequently there's a few that we'd similar ought employ into, besides during they're above the smaller side. besides during again, because you will see, with entire of these planet brands there, they're placed can inherently tough growth markets, both can condition of channel and because sturdy can condition of geography because sturdy and that's too significant ought receive out. The organize fundamentals are too good.

The other big brand that we consume onboard is Nizoral. consequently that was our latest acquisition. This can sturdy challenge Kelo-cote ought exist the largest brand can our portfolio. because you remember, we acquired this from Johnson & Johnson can June final year. Nizoral, because those of you who don't know, is a medicated antidandruff shampoo, it is an antifungal. It is a gold standard placed because sturdy #1 or #2 can each market. The impartial size, impartial can Asia Pacific, is about $363 million. Hopefully, we consume done entire the others can pounds, which you can do the conversion yourself. besides during again, the future brand latent because Nizoral, we study about GBP 25 million ought GBP 30 million. You will cry on what sales it did can -- sales can acquisition because the year, GBP 18.5 million. impartial because the second half of final year, it did GBP 10.9 million. consequently slightly ahead of where we expected it ought be.

So the -- there are 14 territories currently who consume Nizoral. And we consume a 2-year transition services business with Johnson & Johnson. consequently we're nearly 6, 7 months over that. Going sturdy consequently far. Brand's done what we expected it ought do. We've been about ought entire the distributors, some too high-quality distributors came with this acquisition. And we conceive that the impartial ask because Nizoral is pretty strong.

So now we're too much focused above making sure we can supply, making sure that the marketing authorizations employ transferred, intact, and we're ready ought accept those. consequently accurate now, it really is an operational task with Nizoral ought create sure that we can assert the ask can the market. And then because we confront through, we'll exist putting our global markets here can place. We'll exist making sure that they consume a coherent brand tactic along each of the various territory, too although ought what we've done with Kelo-cote. besides during we'll exist basing that out of our Singapore office and out of our Shanghai office because brands similar this are pretty difficult ought jog from Chippenham. And we absence ought create sure we've got the accurate territory expertise and the characteristic of nation that we've got can the operational phase are excellent.

So we've had our first 4 employees coming now ahead of the curve because Nizoral. I'm too pleased with the way that that's shaping up. consequently 2019, because I say, is entire nearly transferring the marketing authorizations, making sure our infrastructure is accurate can securing furnish because Nizoral, besides during a really big band. It's been above the impartial although 1971, because I say, can an inherently tough marketplace can condition of demographic and growth. consequently too pleased with that.

Quite a busy slide. I won't create any apologies. There's a convict going above with entire these 3 brands. MacuShield growing above category. It slowed off a small fragment can the second half of final year. We didn't pretty employ the international markets that