ALLIANCE PHARMA PLC

("Alliance" or the "Group")

Preliminary Results for the year ended 31 December 2022

Diversified portfolio provides robust platform to drive growth in 2023

Alliance Pharma plc (AIM: APH), the international healthcare group, presents its preliminary results for the year ended 31 December 2022 ("the Year"). Whilst trading performance in 2022 was not as strong as had been anticipated at the start of the Year, Alliance successfully completed the highly strategic acquisition of ScarAway^TM and the US rights to Kelo-Cote^TM ("the US Acquisition") in March 2022, and has robust mitigation plans in place to support a return to growth in 2023.

FINANCIAL SUMMARY

OPERATING AND FINANCIAL HIGHLIGHTS

·      Consumer Healthcare see-through revenue^* up 3% to £125.2m (2021: £121.8m) and down 3% at constant exchange rates ("CER") with 16% growth in other consumer brands offsetting softer performance in key brands

·      Revenue growth impacted by lockdown in China, associated temporary disruption to the supply chain, slower recovery in business to business ("B2B") demand for Kelo-Cote and a one-off destocking effect, but boosted by the US Acquisition and FX gains

·      Prescription Medicine performance stable with revenues of £46.8m (2021: £47.8m), down 2% CER

·      Underlying PBT declined 28% largely due to less favourable product mix with a lower proportion of Kelo-Cote and Amberen^TM sales. Reported PBT declined 71%, due to higher non-cash impairment charges of £18.2m, including £12.0m for Amberen

·      Free cash flow was lower by 48% at £15.8m, primarily reflecting the timing of sales and cash receipts. Cash from operations declined by 45% to £24.9m

·      Following the highly strategic US Acquisition for $19.4m (£14.8m), net debt increased to £102.0m moving Group leverage to 2.57 times at 31 December 2022 (1.73 times at 31 December 2021)

DEVELOPING OUR BUSINESS

·      Integration of the US Acquisition completed in just four months, successfully leveraging our established infrastructure, with revenues in-line with expectations

·      Last remaining Nizoral^TM marketing authorisations transferred from Johnson & Johnson ("J&J") to Alliance in both China and Vietnam, new top-tier Chinese distributor appointed and manufacturing supply consolidation progressing well, which will result in improvements in cost efficiencies in the near future

·      Several new proprietary complementary products launched including Kelo-Cote Kids gel and Kelo-Cote Scar Sheets in China, and Canker-X^TM in the US, all of which will contribute to ongoing organic growth

·      Scope 1 and 2 emissions target set to achieve net zero in 2030, with an interim reduction of 65% by 2025

·      Re-certified as a Great Place To Work® in UK, China and Singapore with new certifications in the US and France and a Trust Index^© rating of 79% (2021: 76%)

·      Updated and refined our Purpose, Vision and Strategy to align better with the evolving dynamics of the Consumer Healthcare market

POST YEAR END, STRENGTHENED EXECUTIVE TEAM AND BOARD

·      Peter Butterfield, Chief Executive Officer, has commenced a phased return to work as planned

·      Jeyan Heper appointed as Chief Operating Officer and Board member in February 2023

·      Martin Sutherland appointed as an Independent Non-Executive Director in February 2023

Commenting on the results, Andrew Franklin, Chief Financial Officer of Alliance, said:

"Our portfolio continues to provide a robust platform from which to grow our Consumer Healthcare brands. In 2022, we successfully leveraged our existing infrastructure, acquiring ScarAway and the US rights to Kelo-Cote to create our first truly global brand and bringing additional growth opportunities into the business. We also started to realise the benefits of our investment in Innovation and Development with the launch of Kelo-Cote Kids gel.

"We remain confident in our long-term performance having refreshed our strategy in 2022, to better align our business with the evolving dynamics of the Consumer Healthcare market. Going forward, our efforts will be focused on those market segments in which we already have a strong presence and expertise in order to drive solid organic revenue growth above that of the broader Consumer Healthcare market."

Outlook for 2023

Our clear focus on the core Consumer Healthcare business in addition to our well-established, scalable platform across EMEA, APAC and the US, should support good organic growth in the near term. Whilst 2022 presented some challenges to the business, we have robust plans in place to drive growth in 2023 and the Board's expectations for full year performance are unchanged.

As indicated in the January trading update Kelo-Cote revenues are expected to build through the year, supported by strong end-consumer demand. The China Cross-border e-Commerce ("CBEC") B2B market for Kelo-Cote has shown early signs of recovery with in-market demand and sales orders increasing over the first two months of the year, and we expect total revenue growth for the entire Kelo-Cote franchise to be above 20% in 2023. We expect to see high single digit revenue growth from Nizoral in 2023, as we accelerate the roll-out of our tested strategic plan for the brand in partnership with our new distributors in China and Vietnam.

Amberen faced some temporary headwinds in early 2023 due to supply challenges at Amazon which are being addressed. The underlying market conditions are positive and this, together with our revised marketing plans, mean that we still anticipate double-digit revenue growth for Amberen on a like-for-like basis.

Our portfolio of Other Consumer brands is expected to deliver high single digit revenue growth, substantially ahead of the broader consumer healthcare market.

* The performance of the Group is assessed using Alternative Performance Measures ("APMs"), which are measures that are not defined under IFRS, but are used by management to monitor ongoing business performance against both shorter term budgets and forecasts and against the Group's longer term strategic plans. APMs are defined in note 14.

Specifically, see-through revenue includes all sales from Nizoral as if they had been invoiced by Alliance as principal. For statutory accounting purposes the product margin relating to Nizoral sales made on an agency basis is included within Revenue, in line with IFRS 15.

Underlying measures excludes certain items classed as non-underlying to allow the Group's financial performance to be compared more easily against the majority of its peers. For further detail on non-underlying items please see note 4.

ANALYST MEETING & WEBCAST

A meeting for analysts will be held at 10:00am this morning, 21 March 2023, at Buchanan, 107 Cheapside, London EC2V 6DN. For further details, analysts should contact Buchanan at [email protected]

A live webcast of the analyst meeting will be available at this link:

https://stream.buchanan.uk.com/broadcast/63ed07a0355eac0afbf3fbf4

A recording of the webcast will be made available at the investor section of Alliance's website, https://www.alliancepharmaceuticals.com/investors/

For further information:

About Alliance

Alliance Pharma plc (AIM: APH) is a growing consumer healthcare company. Our purpose is to empower people to make a positive difference to their health and wellbeing by making our trusted and proven brands available around the world.

We deliver organic growth through investing in our priority brands and channels, in related innovation, and through selective geographic expansion to increase the reach of our brands. Periodically, we may look to enhance our organic growth through selective, complementary acquisitions.

Headquartered in the UK, the Group employs around 285 people based in locations across Europe, North America, and the Asia Pacific region. By outsourcing our manufacturing and logistics we remain asset-light and focused on maximising the value we can bring, both to our stakeholders and to our brands.

For more information on Alliance, please visit our website: www.alliancepharmaceuticals.com

Trading performance

The Group delivered see-through revenues of £172.0m in the Year (2021: £169.6m), in line with the guidance given in the trading update on 23 November 2022 (the "November Trading Update") and up 1% on the prior year. Adjusting for currency, revenues declined 3%. Excluding sales from ScarAway and the US rights to Kelo-Cote, both acquired in March 2022 (the "US Acquisition"), like-for-like see-through revenues declined 6% at constant exchange rates ("CER").

Group revenue benefited from exchange rate movements in 2022, principally the weakening of Sterling against the US Dollar and HK Dollar, which increased see-through revenue by approximately £6.7m. Statutory revenue increased 3% to £167.4m (2021: £163.2m) (-2% CER).

Revenue summary

Consumer Healthcare

Total Consumer Healthcare revenues for the Year were £125.2m (2021: £121.8m), up 3% on the prior year (-3% CER) benefitting from the US Acquisition in addition to currency tailwinds. On a statutory basis, reported Consumer Healthcare revenues were £120.6m, up 5% from the previous year (2021: £115.4m) and up 3% CER.

Excluding the impact of the US Acquisition, like-for-like see-through Consumer Healthcare revenue fell 2% (-7% CER) to £118.9m, whilst on a statutory basis, like-for-like Consumer Healthcare revenues decreased 1% to £114.3m (-6% CER).

Kelo-Cote franchise - scar prevention and treatment 

Kelo-Cote franchise revenues grew 2% to £50.0m (2021: £48.8m) in the Year, boosted by the US Acquisition and currency gains (-6% CER). As previously reported, the CBEC scar treatment market declined during H1 2022 as rigid lockdowns in China from March prevented the movement of product across the border from Hong Kong for a number of months, however the online domestic market grew, and Kelo-Cote gained share. In H2 2022, a slower recovery in B2B demand for Kelo-Cote in the China cross-border e-commerce channel, coupled with a one-off destocking effect in that channel, meant that like-for-like global Kelo-Cote revenues were down 17% CER in the Year.

End-consumer demand in the scar treatment market in e-commerce in China remains strong, with 7% value growth in 2022 and Kelo-Cote gaining share. We continue to work with our CBEC distributor to develop further this channel, expand reach and optimise sales. Our B2C channel is well developed and in September our Kelo-Cote flagship on-line store was awarded a prestigious Tmall Global award, alongside a small number of other prominent brands, for surpassing RMB100m (c.£12m) in annual sales for the first time. We have refined our strategy to increase our presence in the significant B2B channel, which incorporates additional distributor support, and have successfully reduced the level of counterfeit product in the market.

Looking ahead, we expect total Kelo-Cote franchise revenues to build throughout the year with overall growth anticipated to be above 20% in 2023, compensating in part for the one-off events which adversely affected revenues in 2022. This is slightly ahead of the 18% compound annual growth rate delivered for the four-year period ending 31 December 2022, excluding the US Acquisition.

Nizoral - medicated anti-dandruff shampoo 

Following the completion of the marketing authorisation transfer for Nizoral in China from J&J, we transitioned to a new top-tier local distributor at the end of the H1 2022 to service the brand's largest market. Our new distributor offers a larger sales team than the partner we inherited from J&J and has fewer products in its portfolio which ensures more sales resources are dedicated to our account. However, phasing of orders to the new distributor led to a 12% decline in revenues in H1 2022.

Nizoral revenues recovered strongly in H2 2022 growing 15% CER, partly due to the delayed orders from H1 falling into H2 and as Alliance finalised the remaining marketing authorisation transfers in Vietnam. Consequently, revenues grew 6% to £21.8m (2021: £20.6m) for the Year (3% CER). The new Chinese distributor, and the completion of all marketing authorisation transfers, provides a very strong platform to drive high single digit revenue growth for Nizoral in 2023, supported by new marketing initiatives and the introduction of updated packaging.

Amberen - vitamin mineral supplement for the relief of menopause symptoms (US)

In the US, Amberen generated net revenues of £14.9m (2021: £19.2m), 22% below prior year (-30% CER). Amberen sales performance was impacted by declines in the underlying bricks and mortar market due to an increase in prevalence of cheaper, white-label alternatives and customer switching to online platforms, in addition to the loss of a leading discount store account. Alliance is committed to improving the performance of Amberen in the higher growth e-commerce channel whilst optimising sales in bricks and mortar where appropriate. The brand's packaging has been re-launched featuring stronger claims, and advertising investment continues focused on digital, video, social media and search engine optimisation to drive share gains.

Amberen now has an enhanced platform from which to generate double-digit revenue growth on a like-for-like basis in 2023 and beyond. We are also focused on developing an innovation pipeline, to underpin the growth of the brand in the longer-term. Given the disruption to the bricks and mortar market, we now anticipate 2025 sales of c.£20m, below our original £35m expectation. As a consequence, coupled with higher interest rates, we have impaired the asset value by £12.0m.

Other Consumer Healthcare brands

Our underlying business remains strong, with Other Consumer Healthcare revenues increasing 16% to £38.4m (2021: £33.2m) and 14% CER, with particularly strong growth from Aloclair and Vamousse. This solid performance in our Other Consumer Healthcare brands clearly illustrates the benefits of a diversified portfolio, and we anticipate continued high single-digit growth in this portfolio of products in 2023, substantially ahead of the broader consumer healthcare market.

Prescription Medicines

The Prescription Medicines business continues to deliver stable revenues with £46.8m (2021: £47.8m), in the Year, down 2% on the prior year on both a reported and currency adjusted basis. Key brands include Hydromol (emollient for the treatment of eczema), Forceval (nutritional supplement) and the Opus range of stoma care products, all of which performed well in the Year.

We continue to actively manage this part of our portfolio, periodically discontinuing or disposing of smaller products that deliver very low sales and margins. However, the cash generation from these assets remains strong and, coupled with their limited requirement for promotional investment, this business continues to play an important part in our overall product portfolio. 

Operating Performance

Whilst revenues increased 1% in the Year, gross profit decreased 7% to £101.7m (2021: £109.5m) due to a less favourable product mix, with a lower proportion of Kelo-Cote and Amberen sales, and with Kelo-Cote generating lower gross margin than in 2021 due to less favourable channel mix. Gross margin reduced by 540 basis points to 59.1% of see-through revenue (2021: 64.5%) and gross margin relative to statutory revenue was 60.7% (2021: 67.1%).

Operating costs (defined as underlying administration and marketing expenses, excluding depreciation and underlying amortisation charges) increased 6% versus the prior year to £62.4m (2021: £58.6m) largely due to increased investment in marketing and employee costs to drive future growth, coupled with a modest increase in expenses to accommodate the US Acquisition.

With a lower share price leading to a £2.2m reduction in share option charges versus prior year (2022: £0.1m, 2021: £2.3m), underlying earnings before interest, taxes, depreciation and underlying amortisation (EBITDA) decreased 19% to £39.2m (2021: £48.6m), whilst underlying operating profit (EBIT) decreased by 22% to £35.7m (2021: £45.6m). Reported operating profit decreased by £11m to £10.6m (2021: £21.6m), with non-underlying items of £25.1m (2021: £24.1m).

Finance costs increased by £2.0m to £5.4m (2021: £3.4m), due to an increase in borrowing costs, reflecting both the rise in interest rates and an increase in the level of borrowings following the US Acquisition.

The reduction in gross margin, together with increased operating and finance costs, led to a 28% decrease in underlying profit before tax to £30.3m (2021: £42.2m), resulting in a 730 basis point margin reduction to 17.6% of see-through revenues. Reported profit before tax decreased 71% to £5.2m (2021: £18.2m), primarily due to non-underlying amortisation and impairment charges.

With an underlying tax charge of £7.2m (2021: £8.0m) equating to an underlying effective tax rate of 23.9% (2021: 19.0%), underlying basic earnings per share decreased 33% to 4.28p (2021: 6.39p). Reported basic earnings per share decreased by 88% to 0.17p (2021: 1.37p) due to a greater impact from non-underlying items on reported earnings in 2022 versus 2021.

Further detail on non-underlying items is provided below and in note 4.

Non-underlying items

Non-underlying items in the year principally comprised amortisation charges for Prescription Medicines and certain other brand assets, together with impairment charges identified as a result of the annual impairment review (see note 4).

For 2022, impairment charges of £18.2m include £12.0m in relation to Amberen, reflecting both the reduction in expected future cashflows, following the loss of a leading discount store account and more challenging trading conditions in the bricks and mortar market, and the higher cost of capital through increasing market interest rates.

Balance sheet development

Intangible assets increased by £7.9m in the year to £421.6m (31 December 2021: £413.7m) reflecting the US Acquisition and exchange rate related revaluation adjustments offset by amortisation and impairment charges of £27.4m of which £12.0m relates to Amberen.

Net working capital at 31 December 2022 was £38.0m, an increase of £16.0m on that at the start of the year (31 December 2021: £22.0m), primarily reflecting movements in payables and receivables balances.

Inventories, net of provisions, increased £3.2m to £24.3m at 31 December 2022 (31 December 2021: £21.1m). This increase was due in part to the inclusion of inventory relating to the US Acquisition, coupled with increased inventory holdings to mitigate against both inflationary pressures and supply chain disruption.

Receivables increased by £18.5m to £49.3m, reflecting the timing of sales and cash receipts in the second half of the year, versus the equivalent period in 2021. Payables increased by £5.7m to £35.6m, reflecting the phasing of invoices and payments around the year end, higher cost of sales and the increase in the year-end inventory holding.

Cash generation

Free cash flow (see note 14 for definition) for the year was £15.8m, in-line with guidance given in the November Trading Update but below the £30.2m reported in 2021 due to the weaker trading performance. Cash generated from operations decreased by 45% to £24.9m (2021: £44.9m).

Following the $19.4m (£14.8m) US acquisition, net debt increased by £15.0m to £102.0m at 31 December 2022 (31 December 2021: £87.0m), with Group leverage increasing to 2.57 times (31 December 2021: 1.73 times) and interest rate cover decreasing to 7.39 times (31 December 2021: 14.34 times).

Net debt and Group leverage are both expected to fall during 2023, particularly in the second half, reflecting the Group's anticipated strong cash generation, with Group leverage expected to be below 2.0 times by the end of 2023.

Dividend

The Board is proposing a final dividend payment of 1.184p per share for 2022, an increase of 5% on the final dividend payment for 2021, taking the total dividend payment for the year to 1.776p (2021: 1.691p). The Board will continue to assess the level of future cash distributions having regard to overall business performance and future outlook.

The final dividend for 2022, subject to approval at the Company's AGM on 25 May 2023, will be paid on 18 July 2023, to shareholders on the register on 23 June 2023.

Operational developments

Our dedicated Innovation and Development (I&D) team was established in 2021 to support the organic growth in our Consumer Healthcare brands and in April 2022 we launched the first product from this initiative, Kelo-Cote Kids, into the CBEC channel. With only two other products in the children's CBEC scar treatment market in China we were able to drive market share gains to 39% in December 2022, delivering incremental growth in the brand.

The performance of this launch has exceeded our initial expectations; new product innovation approvals have been submitted to allow us to launch Kelo-Cote Kids in both the UK and Germany in 2023.

We have a number of new products, line extensions and reformulations in our I&D pipeline and have since the year end launched Canker-X, part of the Aloclair brand franchise, in the US in January 2023. With investment of £1m-£2m per annum in I&D we aim to achieve 10% of Consumer Healthcare sales through products developed on our I&D platform in the next five years.

Refining our Purpose, Vision and Strategy

Throughout 2022 we have worked to refine our Purpose and Vision to align with our transformation to a predominantly Consumer Healthcare company. We have also worked to evolve our strategy to position better the Company for the years ahead and in response to changing underlying market dynamics. Our new Purpose is to empower people to make a positive difference to their health and wellbeing and our Vision is to be a high performing consumer healthcare company, built on a portfolio of leading, trusted and proven brands. Going forward, our aim is to drive solid organic revenue growth above that of the broader Consumer Healthcare market.

Our updated strategy provides a more targeted approach, detailing the key global categories in which we operate, and more clearly defines the areas in which we would consider future acquisitions. Going forward, we will focus our resources on the global priority categories of helping damaged skin and supporting healthy ageing.

Continuing our sustainability journey

We made good progress against our environmental sustainability agenda in 2022, setting a target to reach net zero for all Scope 1 & 2 emissions by 2030. This year we also undertook an initial risk assessment and scenario analysis to support the publication of our first voluntary stand-alone TCFD report and more extensive voluntary TCFD disclosures on our journey to full TCFD compliance.

We gained greater understanding of the constituents of our packaging estate, both primary and secondary, and the steps we need to take to promote recycling and reduce the use of single-use plastics. Our newly appointed sustainable sourcing lead is helping us to progress these initiatives in 2023 with a number of pilot projects planned.

Further detail on the progress we have made with our sustainable business strategy will be provided in our Online Sustainability Report, which will be published shortly on our website.

Building a strong alliance of colleagues

Our business, and the delivery of our strategy, is only possible due to our network of talented, dedicated colleagues. We currently employ more than 285 people in eight locations around the world. We created 18 new roles in 2022, across all our geographies, as we looked to meet our evolving business needs, increasing our capabilities in data analysis, sustainable sourcing and packaging, ERP and sales and marketing in the US.

We have also expanded our talent development programmes to ensure we attract and retain an appropriate mix of skilled professionals. In 2022 we launched our graduate and year in industry programmes to support those at the early stages of their career development and to complement our existing apprenticeship programme in the UK.

As COVID restrictions eased around the world we were finally able to bring together colleagues from all our offices, with the exception of Shanghai, for our first global employee conference. The conference provided an opportunity for colleagues to network, share ideas and discuss our updated Purpose, Vision and Strategy. Due to continued COVID lockdowns, we organised a parallel event to allow our team in Shanghai to participate and share the experience.

Our investment in colleague engagement continues to pay dividends as evidenced by our re-certification as a Great Place to Work in the UK, China and Singapore. We were delighted to receive certification for the first time in the US and France meaning that all our qualifying offices are now certified. In the 2022 survey we were pleased to have received an overall Trust Index rating of 79% (2021: 76%) with 82% of participants globally saying that Alliance was a Great Place to Work (2021: 81%).

On behalf of the Board, we would like to thank all those colleagues who helped us to deliver our achievements in 2022.

Board and executive changes

In February 2023 we welcomed Jeyan Heper to the Alliance Board as an executive in the newly created role of Chief Operating Officer. Jeyan has a strong track record of strategic leadership in the international consumer health market, overseeing a number of global programs and driving growth in flagship brands. In his career spanning more than 25 years Jeyan has held senior executive roles at Procter & Gamble, Danone Group and Ansell's sexual wellness global business, before it was spun-out to become Lifestyles Healthcare, a private equity/pharma-owned company where Jeyan became CEO.

Jeyan will help to bolster the Group's operational capabilities, identify growth opportunities, and help drive the Company's strategy to expand its consumer health presence through leveraging his experience of e-commerce in China and the US, and improving operational effectiveness.

The Board was strengthened further by the appointment of Martin Sutherland as an additional Independent Non-Executive Director in February 2023. Martin is a senior executive with over 30 years' experience in global businesses and is currently a Non-Executive Director at Forterra plc and Reliance Cyber Ltd. Prior to this, Martin was CEO of De La Rue PLC. Martin has a proven track record of delivering growth through new product innovation, market diversification and international expansion.

Martin's experience will bring a new perspective to complement the strong consumer healthcare knowledge already present on the board.

Peter Butterfield, Chief Executive Officer, has commenced his phased return to the business as planned and with Jeyan Heper in place as Chief Operating Officer, the Board has decided that the recruitment of an interim CEO is not required. Andrew Franklin, Chief Financial Officer, will remain as acting CEO, and will focus on running the business with the support of Jeyan and the wider senior leadership team while Peter focuses on preparing for the Competition Appeal Tribunal. The Board anticipates that Andrew will hand back the CEO responsibilities to Peter after the tribunal in June.

Looking forward to 2023

We have robust action plans in place to drive a return to growth in our three key brands this year. We remain confident in our ability to further capitalise on identified organic growth opportunities within the business and to deliver financial performance in line with the Board's expectations which will help drive the de-levering of our balance sheet.

David Cook                                                       Andrew Franklin

Chair                                                                 Chief Financial Officer

21 March 2023                                                  21 March 2023

CONSOLIDATED INCOME STATEMENT

All of the activities of the Group are classed as continuing.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED CASH FLOW STATEMENT

NOTES TO THE FINANCIAL STATEMENTS

for the year ended 31 December 2022

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.

The financial information set out in the announcement does not constitute the Group's statutory accounts for the year ended 31 December 2022 or 31 December 2021. The auditors reported on those accounts and 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 2022 have not yet been delivered to the Registrar of Companies.

2. Revenue and segmental information

The Group's reportable segments are the strategic business units that represent different parts of the overall product portfolio, these being Consumer Healthcare brands and Prescription Medicines. The business units are managed separately as each portfolio requires different expertise to deliver the corresponding product offering as a result of the inherently different characteristics of these product types.

Operating segments reflect the way in which information is presented to and reviewed by the Chief Operating Decision Maker ('the CODM') for the purposes of making strategic decisions and assessing Group-wide performance. The Group's Board of Directors ('the Board') is the Group's CODM. The Group evaluates performance of the operational segments on the basis of revenue and gross profit. Other than intangible assets, assets and liabilities are reported to the Board at Group level and are not separated segmentally.

*  Nizoral statutory revenue includes revenue generated on an agency basis. Nizoral revenue presented on a see-through income statement basis is included as an alternative performance measure in note 14.

Revenue information by Geography

Classification by geography is based on customer location.

Operating Segment Results

Major customers

The revenues from the Group's largest customers in the year ended 31 December 2022 (customers separately comprising more than 10% of the Group's revenue) are as follows. In 2021, no customers separately comprised 10% or more of revenue.

3. Profit before taxation

4. Non-underlying items

The Group presents a number of non-IFRS measures which exclude the impact of significant non-underlying items. This is to allow investors to understand the underlying trading performance of the Group, and can exclude items such as: amortisation and impairment of acquired intangible assets; restructuring costs; gains or losses on disposal; remeasurement and accounting for the passage of time in respect of contingent considerations; and the revaluation of deferred tax balances following substantial tax legislation changes. 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.

Amortisation of intangible assets

The amortisation costs of acquired intangible assets are a significant item considered unrelated to trading performance, and as such have been presented as non-underlying. This classification is in line with the majority of peer companies of the Group.

Impairment of goodwill and intangible assets

The impairment reviews for the Group's intangible assets resulted in impairment losses as the carrying value of certain cash-generating units exceeded estimated recoverable amounts. For the year ended 31 December 2022, goodwill relating to Amberen is impaired by £12.0m (2021: nil) due to a reduction in expected cash flows because of challenging market conditions and an increase in the discount rate applied to these cash flows which is the result of increasing market interest rates. Consumer healthcare brand and distribution rights assets are impaired by £1.2m due to the viability of future sales in the current market. Prescription medicine brands and distribution rights assets are impaired by £5.1m due to the viability of future sales in the current market, supply issues, and increasing costs resulting from changes in the regulatory framework.

For the year ended 31 December 2021, Haemopressin, a prescription medicine brand and distribution rights asset, was impaired by £3.9m due to market factors. Other prescription medicine brand and distribution rights assets were impaired by £0.8m due to increasing costs resulting from changes in the regulatory framework. Consumer healthcare brand and distribution rights assets were impaired by £1.5m due to the viability of future sales in the market.

The impairment losses are significant items resulting from changes in assumptions for future recoverable amounts. As such they are considered unrelated to trading performance and have been presented as non-underlying, consistent with the treatment in prior years.

CMA provision

The CMA provision of £7.9m recognised in the year ended 31 December 2021 relates to the CMA Infringement Decision. This is considered unrelated to trading performance, and as such has been presented as non-underlying.

Restructuring costs

Costs of Group restructuring in the year ended 31 December 2021 (£2.4m) related to the closure of the Milan and Los Angeles offices. These costs are a significant item considered unrelated to 2021 trading performance, and as such have been presented as non-underlying.

Other non-underlying items

The other non-underlying items relate to capitalised professional fees in relation to the ScarAway acquisition which completed in March 2022. These costs were incurred in 2021 as non-underlying costs and capitalised in 2022 post-completion.

Impact of UK tax rate change from 19% to 25%

In the Budget on 3 March 2021, a change to UK corporation tax rates was announced, increasing the main rate from 19% to 25% with effect from 1 April 2023. The impact on deferred tax of this further rate increase is included in these financial statements as a non-underlying item for the year ended 31 December 2021.

5. Finance costs

6. Taxation

Analysis of the charge for the period is as follows:

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:

A change to UK corporation tax was announced in the Budget on 3 March 2021, increasing the main rate of UK corporation tax from 19% to 25% with effect from 1 April 2023. The taxation charge for the year ended 31 December 2021 includes the impact on deferred tax of this increase.

The Group has calculated 'underlying effective tax rate' as an alternative performance measure in note 14.

7. Dividends

An interim dividend of 0.592p per share for the 2022 financial year was paid on 19 January 2023. The Board is proposing a final dividend payment of 1.184p per share for 2022, taking the total dividend payment for the year to 1.776p (2021: 1.691p).

8. 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:

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:

The resulting EPS measures are:

9. Loans and borrowings

The Group has a £165m fully Revolving Credit Facility ('RCF'), together with a £50m accordion facility, with a syndicate of lenders. This facility is available until July 2024. The bank facility is secured by a fixed and floating charge over the Company's and Group's assets registered with Companies House. The loan commitments are all 'investment grade' as at the balance sheet date.

* Exchange movements on loans and borrowings with effective net investment hedges are reported in other comprehensive income and accumulated in the translation reserve.

10. Provisions

On 23 May 2019 the UK's Competition and Markets Authority ('CMA') issued a Statement of Objection alleging anti-competitive agreement involving 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 £0.1m in 2022 (2021: £0.7m).

On 3 February 2022, the CMA announced its finding that four companies, including Alliance, had infringed competition law (the "Infringement Decision"). The Alliance Board fundamentally disagrees with the CMA's finding.

The Group believes that it has a strong case and has appealed the CMA's decision, and the proposed fine of £7.9m, with its appeal now fixed to be heard at the Competition Appeal Tribunal from 5 June 2023.

Despite its Appeal, the Directors believe that, as a result of the Infringement Decision, a provision of £7.9m should be recorded at 31 December 2022 (2021: £7.9m).

This reflects the maximum amount of the proposed fine communicated by the CMA, and therefore, notwithstanding the Directors' belief as to the merits of the grounds on which it is appealing the CMA decision, the Directors consider this to be the appropriate position given that, in the event that the Group's appeal proved to be unsuccessful, the ultimate level of the fine cannot be greater than this. In addition, in the event the Group's appeal were to prove to be unsuccessful, the Directors consider that there are strong grounds upon which the amount of the fine could be reduced. However, as this is a matter which cannot be predicted with certainty at this time the Directors believe that the most appropriate course of action is to include the maximum potential amount of the fine.

If the appeal is unsuccessful, the Group may also be liable for a proportion of the legal costs of the CMA relating to the appeal. The Group has not recorded a provision in relation to these potential litigation costs as their amount cannot be reliably estimated.

The restructuring provision of £0.5m at 31 December 2022 (2021: £1.6m) relates to the balance of restructuring costs in relation to the closure of the Milan office following a change to the operating model for our direct-to-market business in Italy. The related outflows are expected to occur in the year ended 31 December 2023.

11. Deferred tax

Reconciliation of deferred tax movements:

The Group has as unrecognised deferred tax assets of £354,000 in relation to losses (2021: £246,000).

12. Share capital

Between 1 January 2022 and 31 December 2022 1,769,562 shares were issued on the exercise of employee share options (2021: 5,306,413).

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.

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 2022 net debt was £102.0m (2021: £87.0m) (see note 14), whilst shareholders' equity was £287.7m (2021: £282.5m).

The business is profitable and cash-generative. The main financial covenants applying to bank debt are that leverage (the ratio of net bank debt to EBITDA) should not exceed 3.0 times, and interest cover (the ratio of EBITDA to finance charges) should not be less than 4.0 times. The Group complied with both of these covenants in 2022 and 2021.

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.

13. Cash generated from operations

14. 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 are as follows:

Measure

Definition

Reconciliation to GAAP measure

Underlying

EBIT and EBITDA

Earnings before interest, tax and non-underlying items (EBIT also referred to as underlying operating profit), then depreciation, amortisation and impairment (EBITDA).

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.

Note A below

Free cash flow

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

Net debt is defined as the group's gross bank debt position net of finance issue costs and cash.

Note C below

Underlying effective tax rate

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

See-through

income statement

Under the terms of the transitional services agreement with certain supply partners, 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 to Alliance. The net product margin is recognised as part of statutory revenue.

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

Note E below

Constant exchange rate (CER) revenue

Like-for-like revenue, impact of acquisitions and total see-through 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

Like-for-like figures compare financial results in one period with those for the previous period, excluding the impact of acquisitions and disposals made in either period. For 2022, like-for-like revenue excludes the impact of ScarAway and Kelo-Cote US which were acquired in March 2022.

Not needed

Operating costs

Defined as underlying administration and marketing expenses, excluding depreciation and underlying amortisation charges.

Not needed

A. Underlying EBIT and EBITDA

B. Free cash flow

C. Net debt

D. Underlying effective tax rate

E. See-through income statement

There is no impact from the see-through adjustment on income statement lines below gross profit.

F. Constant exchange rate revenue