TIDMCLIN
RNS Number : 2358Z
Clinigen Group plc
17 September 2020
17 September 2020
Double digit organic EBITDA growth delivered
Platform in place for accelerated growth
Clinigen Group plc (AIM: CLIN, 'Clinigen' or 'the Group'), the
global pharmaceuticals and services group, has today published its
full year results for the year ended 30 June 2020.
FINANCIAL SUMMARY
Year ended 30 June Growth
-----------
2020 2019 Constant
GBPm GBPm Reported currency(5) Organic(6)
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Adjusted measures(1)
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Net revenue(2) 466.2 407.0 15% 15% 8%
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Gross profit(3) 220.0 182.3 21% 21% 10%
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EBITDA(4) 131.0 100.8 30% 31% 13%
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EBITDA(4) as % net revenue 28.1% 24.8% 330bps
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Earnings per share 65.6p 54.4p 20 %
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Statutory measures
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Revenue 504.3 456.9 10% 10% 4%
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Gross profit 215.1 182.3 18%
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Profit before tax 22.6 12.3 83%
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Earnings per share 10.3p 4.0p >100 %
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Dividend per share 7.61p 6.7p 14 %
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Operating cash flow(7) 94.8 89.8 6 %
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Net debt 311.9 252.4
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FINANCIAL HIGHLIGHTS
-- Strong organic performance at net revenue, gross profit and
EBITDA with adjusted EPS up 20% to 65.6p (2019: 54.4p)
-- Cash flows materially improved in H2, with operating cash
flow conversion of 123% in H2, equating to 72% for FY20 overall
-- Medium term organic net revenue growth guidance of 5 - 10% -
with FY21 to be at the lower end due to impact of COVID-19 and
expected launch of a generic Foscavir in the EU; Foundations in
place for accelerated long term growth from FY22
-- Trading to date at this early stage of the current financial
year is in line with market expectations, with impact of COVID-19
continuing but at improved levels from Q4
OPERATIONAL HIGHLIGHTS
-- Diversified business model adapted well to disruption caused
by COVID-19 pandemic in Q4; synergies continuing to build between
operations for longer term sustainable growth
-- Commercial Medicines - strong underlying performance across
the portfolio, particularly from Unlicensed-to-Licensed (UL2L)
developments and from licensing agreements in the Africa and Asia
Pacific regions (AAA). Headwinds to Proleukin caused by COVID-19
disruption partly reversed towards year end and are expected to
improve further in the current financial year
-- Significant in-licensing agreement for Erwinase(R) signed
with Porton Biopharma Ltd, commencing in 2021; example of the
strategy to partner with pharmaceutical companies and strengthens
commercial offering in key markets
-- Unlicensed Medicines - excellent growth in Global Access with
weakness in Managed Access caused by both timing of programs
starting and finishing, and COVID-19 disruption offset partly by
record program win-rate
-- Clinical Services - robust top line performance driven by
good growth in CSM and material contract win in CTS, against a
challenging market backdrop due to COVID-19 disruption
Shaun Chilton, Group Chief Executive Officer, said:
"Few companies have been immune to the disruption caused by
COVID-19, but Clinigen's performance has remained robust and the
Group has delivered double digit organic growth and double digit
EPS growth yet again. This is a testament to the Group's employees
who have worked tirelessly during this difficult period.
"The year has presented challenges, but also new opportunities
for growth as the Group has pivoted quickly to support efforts
against the pandemic with several material new contract wins in
Unlicensed Medicines and Clinical Services. There has been a strong
underlying performance from Commercial Medicines despite headwinds
facing Foscavir and COVID-19 related disruption to Proleukin.
Looking forward, the impact from these headwinds is expected to
reduce throughout FY21, before growth accelerates from further
expected market share gains for our services businesses, the
in-licensing of Erwinase and the revitalisation of Proleukin in new
indications.
"We remain confident in achieving our objectives for FY21 -
continuing to focus on both the unlicensed and licensed markets,
and to demonstrate the synergistic link between the divisions. For
the longer term, we have the pillars of the business in place for
accelerated growth from FY22."
Note
1. Group results on an adjusted basis exclude amortisation of
acquired intangibles and products, and other non-underlying items
relating to acquisitions (see note 3 and 4 of the condensed
financial statements).
2. Adjusted net revenue excludes Managed Access pass through
revenue which varies each period dependent on the mix of
programs.
Adjusted net revenue is a new alternative performance measure of
top line performance which is now used to manage the business as it
eliminates volatility in reported revenue which can arise as a
result of the mix of Managed Access Programs.
3. Adjusted gross profit excludes the impact of exceptional
charges from write down of inventories.
4. Adjusted EBITDA includes the Group's share of EBITDA from its
joint venture and is now shown after the adoption of IFRS 16. The
Group implemented IFRS 16 'Leases' for the first time in FY20 using
the modified retrospective approach. Comparatives have not been
restated and therefore are not comparable to the prior year.
Organic growth has been calculated excluding the impact of IFRS
16.
5. Constant currency growth is derived by applying the prior
year's actual exchange rate to this year's result.
6. Year-on-year comparisons referred to as 'organic' are a
measure of growth on a constant currency basis, excluding the
impact of business and product acquisitions. Acquisitions completed
in the previous financial year are included on a like-for-like
basis including the results for the acquisition where it is
included in the comparable historical period. Organic growth is
presented to aid the reader's understanding of the underlying
performance of the business. In previous reports, organic growth
was calculated on a pro forma basis with the comparative period
results before acquisition based on the vendors' previously
reported results. The like-for-like basis now used has been
necessary due to the limited reported financial information
available for the products' results prior to acquisition by
Clinigen. On a pro forma basis, the best estimate for organic
adjusted EBITDA growth for the year ended 30 June 2020 is 12%.
7. Operating cash flow is net cash flow from operating
activities before income taxes and interest.
- Ends -
A virtual analyst briefing will be held at 9:30am on Thursday,
17 September 2020. To register interest, please contact Instinctif
Partners at clinigen@instinctif.com.
An audio replay file will be made available shortly afterwards
via the Group's website: www.clinigengroup.com .
Contact details
Clinigen Group plc Tel: +44 (0) 1283 495010
Shaun Chilton, Group Chief Executive Officer
Nick Keher, Group Chief Financial Officer
Matt Parrish, Head of Investor Relations
J.P.Morgan Cazenove - Nominated Adviser & Joint Tel: +44 (0) 20 7742 4000
Broker
James Mitford / Hemant Kapoor
RBC Capital Markets - Joint Broker Tel: +44 (0) 20 7653 4000
Marcus Jackson / Elliot Thomas
Instinctif Partners Tel: +44 (0) 20 7457 2020
Adrian Duffield / Melanie Toyne-Sewell / Phillip
Marriage Email: clinigen@instinctif.com
Notes to editors
About Clinigen Group
Clinigen Group plc (AIM: CLIN) is a global pharmaceutical and
services company with a unique combination of businesses focused on
providing ethical access to medicines. Its mission is to deliver
the right medicine to the right patient at the right time through
three areas of global medicine supply; clinical trial, unlicensed
and licensed medicines. The Group has sites in North America,
Europe, Africa and the Asia Pacific region.
Clinigen now has over 1,150 employees across five continents in
14 countries, with supply and distribution hubs and operational
centres of excellence in key long term growth regions. The Group
works with 21 of the top 25 pharmaceutical companies; interacting
with over 18,000 registered users across 115 countries, shipping
approximately 6.5 million units in the year.
For more information on Clinigen, please visit
www.clinigengroup.com
Cautionary statement
This announcement contains certain projections and other
forward-looking statements with respect to the financial condition,
results of operations, businesses and prospects of Clinigen Group
plc. These statements are based on current expectations and involve
risk and uncertainty because they relate to events and depend upon
circumstances that may or may not occur in the future. There are a
number of factors which could cause actual results or developments
to differ materially from those expressed or implied by these
forward-looking statements. Any of the assumptions underlying these
forward-looking statements could prove inaccurate or incorrect and
therefore any results contemplated in the forward-looking
statements may not actually be achieved. Recipients are cautioned
not to place undue reliance on any forward-looking statements
contained herein. Except as required by law, Clinigen undertakes no
obligation to update or revise (publicly or otherwise) any
forward-looking statement, whether as a result of new information,
future events or other circumstances.
OVERVIEW
Introduction
Clinigen is dedicated to providing greater access to medicines
around the world and in doing so delivering incremental value from
pharmaceutical products by extending and expanding its
lifecycle.
Clinigen achieves this through operating as a pharmaceutical and
pharma services group. Clinigen has three businesses; Clinical
Services, Unlicensed Medicines and Commercial Medicines - each
working synergistically to facilitate access to medicines at key
points of a product's lifecycle.
Within services, Clinigen has created an international,
integrated services group via organic growth and through a buy and
build strategy, positioning itself as the most logical partner for
two distinct but directly connected customer groups:
1) Pharmaceutical and biotech companies, increasing the value of
their product(s) through lifecycle management; and
2) Healthcare professionals (HCPs), particularly hospital
pharmacists, giving them a 'go to' source for hard to access
medicines.
Within pharmaceutical products, the Group is building a
portfolio of specialist, hospital medicines to further increase
shareholder value by revitalising these products. This benefits
from the insight of its unlicensed supply channel to drive extended
use of these niche, important medicines.
FY20 Overview
Following the strategically transformational corporate and
product acquisitions made in FY19, the focus for the Group in FY20
has been to integrate the acquisitions further and to capitalise on
the Group's international platform to support synergistic growth in
FY21 and beyond. Integration of these acquisitions is either
complete or well progressed, and the Group is already seeing the
benefits through strong financial performance and operational
synergies.
An important area of focus continues to be in strengthening the
links between the Group's three business operations by deepening
the relationships with both pharmaceutical and biotech companies
(clients) and HCPs (customers). The Group is aiming to embed a
culture that seeks to maximise value through extending the
commercial relationship through the product lifecycle. The Group
increased the number of pharmaceutical and biotech companies it
works with during the year to 557 (2019: 532) and also expanded the
number of registered users (HCPs) with which it interacts to 18,625
(2019: 15,580) on its digital platform, Cliniport.
As previously guided, the Group has now changed its reporting
structure to a divisional EBITDA profit-level model, akin to
industry peers. Management believes this will lead to better
internal cost control and P&L accountability whilst allowing
for easier interpretation of results by external stakeholders.
The Group is delivering on its strategy, as demonstrated by the
good financial performance in FY20, despite headwinds faced by the
business due to COVID-19. Net revenue increased by 15% (15% on a
constant currency basis and 8% on an organic basis), adjusted gross
profit increased by 21% (21% on a constant currency basis and 10%
on an organic basis) to GBP220.0m (2019: GBP182.3m), driven by both
the acquisitions made in FY19 and a strong underlying
performance.
Adjusted EBITDA increased by 30% (31% on a constant currency
basis and 13% on an organic basis) to GBP131.0m (2019: GBP100.8m).
Adjusted EPS increased by 20% to 65.6p (2019: 54.4p). Operating
cash flow at GBP94.8m (2019: GBP89.8m) reflects a materially
improved performance overall in H2 after the working capital
outflow seen in H1. Management expects the FY21 cash flow
performance to improve upon that delivered in FY20, as the working
capital headwinds seen in H1 FY20 continue to unwind.
The Directors are also proposing to increase the final dividend
to 5.46p per share (2019: 4.75p), resulting in a 14% increase in
the full year dividend to 7.61p per share (2019: 6.7p).
Based upon current expectations, net debt is expected to end
FY21 broadly flat with FY20, with the temporary working capital
headwinds seen in H1 FY20 continuing to unwind. In FY21 net debt is
expected to increase temporarily in H1 following the payment of
US$89.5m on the CSM deferred consideration. The Group reiterates
its aim to paydown and maintain net debt within a range of 1.0x to
2.0x EBITDA on an ordinary basis within 12-18 months.
COVID-19
During the COVID-19 pandemic, Clinigen immediately implemented a
range of measures to prioritise keeping its employees safe,
including extensive home working. The Group has worked closely with
its pharmaceutical clients and its hospital customers to ensure
that the supply of critical medicines to patients on a global basis
continued uninterrupted.
During the fourth quarter, the Group experienced more meaningful
disruption to its activities from COVID-19, but continued to
deliver good progress overall. Clinical Services was impacted by
clinical trials being delayed or cancelled, whilst both Commercial
Medicines and Unlicensed Medicines saw reduced volume demand as
treatments in the hospital setting, particularly for oncology,
slowed. However, the Group quickly pivoted activities to support
efforts against the pandemic, resulting in material contract wins,
whilst containing costs to lessen the impact from a lower top line
performance.
Clinigen estimates that the impact of COVID-19 to be between 5%
to 7% to adjusted EBITDA in FY20, with this primarily related to
Proleukin as treatment centres shut and demand fell. As expected,
these headwinds have continued throughout the first quarter of the
current financial year and are expected to continue through the
second quarter. The Group has seen signs of recovery, specifically
from territories that have begun to relax restrictions related to
the pandemic or have adapted to the new working environment, but as
expected the recovery is protracted, shows variability by
geography, and hospital demand in particular remains lower than
normal.
CURRENT TRADING AND OUTLOOK
Trading to date at this early stage of the current financial
year is in line with market expectations, with the impact of
COVID-19 continuing, but at an improved level from Q4 FY20.
The Group's medium term guidance is for future organic net
revenue growth to be between 5% to 10%, with FY21 expected to be at
the lower-end due to the impact of COVID-19, which is expected to
subside, and an expected launch of a generic Foscavir in the EU.
Given the above and the timing of contracted Proleukin shipments,
H1 is expected to be below the prior year followed by a return to
growth in H2. This will be more evident within Commercial Medicines
and Unlicensed Medicines where the impact of COVID-19 has been
greater.
Growth in FY22 is then expected to significantly accelerate as
new asset Erwinase is onboarded and the Group continues to gain
share in the end-markets it serves. Management sees the potential
for higher organic growth as Proleukin revitalisation takes place
and as it gains traction within new indications.
The next scheduled trading update will be at the AGM on 26
November 2020.
OPERATIONAL REVIEW
Commercial Medicines (encompassing medicines acquired, licensed
and developed)
The strategy for Commercial Medicines comprises three areas of
focus in order to expand its diversified product portfolio that can
deliver sustainable growth:
o Acquired: Continued revitalisation/growth of current portfolio
of niche hospital-only and critical care products, coupled with
future, selective product acquisitions
o Licensed: Being the licensing partner of choice for
pharmaceutical and biotech clients in their core or non-core
territories through regional and global licensing agreements using
Clinigen's scale and footprint
o Developed: Developing a pipeline of products using the
Unlicensed-to-Licensed (UL2L) or regional model to support unmet
medical need in the markets regionally or globally
Net revenue in Commercial Medicines increased 42% (+29% on an
organic basis) to GBP156.7m (2019: GBP110.3m), whilst gross profit
increased by 47% (+29% on an organic basis) to GBP116.5m (2019:
GBP79.3m). The performance was due to strong underlying growth
across the portfolio, particularly from the UL2L developments and
from licensing agreements in the AAA regions. Growth was also
supported by the acquisitions made in FY19. In the final quarter,
growth was impacted by material headwinds to Proleukin caused by
COVID-19 disruption. The impact of this disruption has continued
into Q1, albeit at a reduced level, and management currently
assumes it will subside fully in the second quarter as treatment
centres reopen and patient referrals pick up to pre-COVID-19
levels.
EBITDA in Commercial Medicines increased 55% (+34% on an organic
basis) to GBP84.3m (2019: GBP54.4m) due to the increase in net
revenue. The growth in EBITDA was higher than the growth in net
revenue due to improving sales mix and good cost control.
Gross margin was 74.4% (2019: 72.0%) with the increase due to
the change in mix towards the higher margin Acquired Products
portfolio.
Commercial Medicines pipeline
The Group continues to seek selective product acquisitions that
fit within the Acquired Products portfolio, and regional and global
in-licensing opportunities to leverage the platform. In addition,
the business continues to develop its pipeline of UL2L products, as
well as complementary, larger, niche generic products. There are
currently 14 products in the Developed Products pipeline which are
due to be launched in the next two to three years (2019: 17) with a
peak asset net revenue value of GBP39m.
Acquired Products (by therapeutic category)
This includes the seven Acquired Products (Foscavir, Imukin,
Proleukin, Cardioxane, Savene, Totect and Ethyol), along with
iQone, the Swiss-based specialty pharmaceutical business acquired
in October 2018.
Anti-infective portfolio (Foscavir and Imukin)
Foscavir, the Group's largest product prior to the acquisition
of Proleukin, is an antiviral used to treat herpesvirus infections
(typically CMV and HHV6) mainly in bone marrow transplant and
HIV-infected patients. Foscavir performed well in the H2 in spite
of increased competition from a novel product, with gross profit
flat year-on-year.
At the year end the Group became aware of a generic Foscavir
approval in the EU but has not yet seen any formal product launch.
It is not possible to quantify precisely the financial impact that
the launch of a generic alternative to Foscavir will have on
Clinigen's revenues, or how quickly such an impact would take
effect. However, the Board has long anticipated the generic threat
and management is enacting its strategy to mitigate loss and
expects the impact to be captured within its medium term organic
gross profit guidance.
Imukin has performed in line with management expectations
despite disruption caused by COVID-19.
Oncology portfolio (Proleukin, Cardioxane, Savene, Totect and
Ethyol)
Proleukin, one of the Group's two biologics, is indicated for
use in metastatic renal cell carcinoma, as well as for metastatic
melanoma in certain markets. It is Clinigen's largest product and
has created the foundation from which to expand Clinigen's existing
footprint in the higher value US market.
Proleukin usage declined largely as a result of disruption
caused by COVID-19 in the US and, whilst end-market demand has
improved as treatment centres have reopened, volumes still remain
below pre-COVID-19 levels and are expected to remain subdued until
the situation resolves further. In addition, the timing of
contracted shipments to clinical trial customers are weighted to
the 2H of the financial year. Given this, it is anticipated that
growth will be weighted to the 2H with the 1H expected to be below
the prior year.
Whilst the FY21 impact of COVID-19 is impacting growth rates,
management sees this as temporary in nature and continues to see
meaningful potential from the revitalisation of Proleukin,
particularly within new indications and alternative usages, and
there were a number of positive developments in the period.
Proleukin is being investigated alongside TIL (tumor
infiltrating lymphocyte) therapies within a number of new and
existing oncology indications. During the period, data for adoptive
cell therapy was presented at the prestigious US cancer conference,
ASCO, that showed significant benefit to patients within both
metastatic melanoma and cervical cancer. If these therapies in
these indications are approved, management sees a significant new
commercial opportunity for Proleukin, with a market opportunity of
c.7k patients in metastatic melanoma alone.
Separately, there has been research published evaluating the
safety and efficacy of Proleukin with emerging cell therapies in
metastatic Non-Small-Cell Lung Carcinoma (mNSCLC) after evidence of
progression on nivolumab. These opportunities are being evaluated
by third parties independent from Clinigen which could open up
another significant market opportunity for Proleukin. Clinigen
management is evaluating both the potential for improved
reimbursement and optimal presentation for the product to support
these new indications.
Outside of oncology management also sees a significant medium
term opportunity for aldesleukin (the active pharmaceutical
ingredient (API) of Proleukin) within amyotrophic lateral sclerosis
(ALS). In July 2020, Clinigen announced that the US Food and Drug
Administration (FDA) Office of Orphan Products Development (OOPD)
granted Orphan Drug Designation (ODD) for aldesleukin in the
treatment of ALS. ALS is a severe, neurodegenerative disease which
affects motor neurons leading to progressive muscle weakness,
paralysis and ultimately death within a median time of two to four
years from disease onset.
Clinigen is supplying aldesleukin to the ongoing MIROCALS study
evaluating its clinical potential within ALS, with data expected by
Q3 2021, and is investigating the optimal pathway to support and
submit an application for a marketing authorisation in the US and
other key markets. An ODD in the US recognises the potential
therapeutic role of aldesleukin in this devastating disease and
could provide a number of benefits for Clinigen should it obtain a
marketing approval for this indication. These benefits include
seven years marketing exclusivity within the US upon launch, along
with tax credits for clinical development costs and fee waivers.
Management is exploring developing a new product presentation for
this indication and will update further in due course.
Ethyol benefited from the Group taking back direct control of
the product in the US from its previous partner, and being able to
sell directly into hospitals utilising its commercial
infrastructure, formed and developed as a result of the acquisition
of Proleukin. However, due to delays with the manufacturing tech
transfer process between third party manufacturers, management
expects to be without product for a prolonged period of FY21.
Whilst disappointing, management remains committed to the product,
the only product of its type in the US and EU, and has enlisted a
top tier CDMO to take on the manufacturing moving forwards. This
impact has been captured within management's forward-looking
guidance.
From the dexrazoxane products (Cardioxane, Savene and Totect),
Savene performed very well where the focus has been on the products
replacement cycle and education of HCPs on its usage in the
hospital setting to treat extravasation. The Group are currently
evaluating the potential to amend the label on Totect, which if
successful, would lead to increased revenues.
Licensed Products
The Group continues to make good progress in extending the
commercial strategy through utilising its international platform
and expertise in being the ideal licensing partner for an
increasing number of companies where they have no desire or
infrastructure to commercialise their products.
In April 2020, Clinigen signed an exclusive licensing and
distribution agreement with Porton Biopharma Ltd (PBL) to
commercialise Erwinase(R) / Erwinaze(R) (Erwinase). Erwinase is
approved for patients with Acute Lymphoblastic Leukaemia (ALL) who
have developed hypersensitivity to E.coli-derived asparaginase in
19 countries, including the US, Europe and Japan.
Clinigen will look to expand the market opportunity for Erwinase
by driving awareness of the product's availability, ensuring
uninterrupted patient access, launching in select new countries and
increasing the global supply of the product into unlicensed markets
utilising its global infrastructure and experience in this
field.
Erwinase will be the Group's third biologic and fits well within
Clinigen's existing haematology and oncology product portfolio and
customer base. It further strengthens and leverages Clinigen's
established commercial infrastructure in the EU, the higher value
US market and in other territories such as Japan.
In the year to 31 December 2019, net sales of Erwinase were
US$177m. Whilst the agreement will start on
1 January 2021, it is anticipated that net sales for Clinigen
will not begin until the second half of 2021 as the product is
transitioned from PBL's current licensing partner. PBL will
maintain the trademarks and manufacturing of the product, whilst
Clinigen will be responsible for marketing, packaging, labelling,
storage and distribution of Erwinase.
In the Africa and Asia Pacific region, the Group has 267 (2019:
241) local marketed licences including branded and generic products
of variable strengths and dosages across multiple geographies.
Growth was good across all regions, particularly from Asia where
licences are held across six countries.
In April 2020, Clinigen announced it had submitted a New Drug
Application (NDA) to the Pharmaceuticals and Medical Devices Agency
(PMDA) in Japan for Hunterase (Idursulfase-beta) ICV under the
strategic alliance with GC Pharma. The NDA submission follows the
agreement signed with GC Pharma in April 2019, which was the first
Japanese licensing agreement with an international company signed
by Clinigen. Clinigen will license and commercialise the product
using its local expertise and infrastructure in the Japanese
market.
Management continues to actively review new in-licensing
opportunities of both established and late-stage development
molecules to launch from Clinigen's established platform. These
late-stage development molecules have often been introduced from
the Group's Managed Access business and represent a further
strengthening of the platform, as management works to 'follow the
molecule' from development to launch, partnering with those
companies that do not have the required commercial infrastructure,
or wish to benefit from accessing both the unlicensed and licensed
market opportunities in full.
Developed Products
The Commercial Medicines business also develops, licenses and
commercialises medicines that were previously prescribed as
unlicensed medicines. Obtaining marketing authorisations for
previously unlicensed products is an example of the UL2L strategy
in Commercial Medicines. This strategy not only leads to a material
uplift in revenues but also satisfies a previously unmet clinical
need for patients and is why the business will continue to explore
and invest to strengthen and diversify the portfolio on an
international basis.
By year end, the business had 15 products in its portfolio
(2019: 14).
Following its launch in June 2019, the portfolio's lead product,
Melatonin, performed strongly as did the portfolio's first
significant product taken through the UL2L regulatory pathway,
Glycopyrronium Bromide Oral Solution 1mg/5ml (Glyco). The
performance of both these products was a key driver of organic
growth in the year.
Although both these products initially were supplied on an
unlicensed basis and subsequently launched in the UK, good progress
has been made to internationalise revenues by utilising the Group's
commercial infrastructure and working with partners to supply and
distribute into new territories. Internationalisation of the
Developed Products portfolio is a key part of the strategy in
extending and expanding the lifecycle of medicines and help patient
to get access to these products.
Unlicensed Medicines (encompassing Managed Access and Global
Access)
Clinigen is the international leader in ethically sourcing,
managing and supplying unlicensed medicines to hospital pharmacists
and physicians for patients with a high unmet medical need. The
Group contracts with pharmaceutical and biotech companies to
provide Managed Access Programs (MAPs) for innovative new medicines
and provides Global Access to medicines which remain unlicensed at
the point of care.
Clinigen's aim is to be the first point of call for HCPs to
source hard to access, unlicensed medicines through its strategy
of:
o Developing a rich pipeline based on industry trends and innovation
o Providing a world-class customer service to HCPs through three
distinct channels (online, telephony and in person), sourcing hard
to access medicines for their patients
o Converting MAPs to long term exclusive supply agreements in Global Access
Net revenue in Unlicensed Medicines increased 2% (+3% on an
organic basis) to GBP158.9m (2019: GBP156.0m), whilst gross profit
decreased by 4% (-3% on an organic basis) to GBP66.7m (2019:
GBP69.7m). The performance represented excellent growth in Global
Access despite ongoing headwinds in the UK Specials business and
weakness in Managed Access caused by both the timing of programs
starting and finishing, and COVID-19 disruption, which has
continued into the first quarter. Organic net revenue and gross
profit growth excluding UK Specials was 14% and 7%
respectively.
EBITDA in Unlicensed Medicines decreased 2% (-5% on an organic
basis) to GBP34.4m (2019: GBP35.0m). The decline in EBITDA was
greater than the decline in net revenue due to investment in the
business to support the onboarding of new MAPs and lower
utilisation at the UK Specials facility.
Unlicensed Medicines pipeline
The business development teams in Unlicensed Medicines is
focused on forming long term relationships with clients to realise
the full opportunity of following a molecule from an early access
setting through to commercial launch. Given the lengthy nature of
the product lifecycle, this opportunity is likely to be realised in
the medium to long term.
At the end of period there were 70 programs in the Managed
Access pipeline (2019: 52) and 47 partnered products in the Global
Access pipeline which the business is looking to partner with on an
exclusive basis (2019: 22).
Managed Access
Following a slow performance in Managed Access in H1, due to two
of its largest programs beginning to wind down, the performance
improved in H2 despite facing headwinds in the final quarter from
COVID-19 as demand for treatments in the hospital setting,
particularly for oncology, slowed.
Following the 16 programs signed in H1, which contributed to the
improved H2, there were a further
25 programs signed in the second half - the highest in the
Group's history. Some of these new programs are high profile and
relate to the clinical development of products for COVID-19. Whilst
these new program wins have led to an increase in market share, and
would ordinarily lead to meaningful revenue and profit growth, it
is expected the disruption caused by COVID-19 will lead to a
reduced first half performance based upon a lower than normal level
of patients started on these novel therapies. Once hospital
disruption ends and end-market demand returns to normal, the
business expects to benefit more meaningfully from these program
wins.
As at 30 June 2020, there were 131 MAPs (2019: 117), of which
91% of products shipped on behalf of the client were provided free
of charge to patients. When the product is 'charged for', the
revenue is passed through the Group's accounts. A shift in mix
towards 'free of charge' products can have a material impact on the
revenue generated without affecting gross profit, which is why the
Group views net revenue and gross profit as the preferred measures
of top-line growth.
Collectively, the top 10 MAPs contributed 35% of the Managed
Access gross profit (2019: 38%) with nine of the top 10 in the
oncology therapy area (2019: six oncology).
Global Access
In Global Access, the Group ethically supplies unlicensed or
short supply medicines to patients via their HCPs; note, the
hospital pharmacist is the main customer. There are 44 exclusive
supply agreements for high demand or niche medicines covering 57
products under management (2019: 54). Contracting for exclusive
supply agreements was delayed by COVID-19, but issues surrounding
this have alleviated somewhat and the Group has signed 15 exclusive
supply agreements post the year end.
On a regional basis, Asia once again delivered excellent growth,
driven by expanding supply from the hub in Singapore into
surrounding territories. Strong growth in Australia, New Zealand
and Europe was supplemented by maximising the opportunity in
fulfilling drug shortages. Although short term in nature, shortages
are becoming an increasing challenge for pharmaceutical companies
as they struggle to manage an imbalance in the demand and supply of
medicines. In having the international infrastructure to provide
access to medicines, this is an increasing area of growth for the
division as well as serving a benefit to patients in need.
Within Global Access, the greatest disruption caused from
COVID-19 was to those medicines supplied outside an exclusive
agreement ('on-demand'), as demand for non-COVID-19 treatments
reduced in the hospital setting. This disruption has continued in
the first quarter of this financial year.
As previously highlighted, the niche UK Specials business within
Unlicensed Medicines is facing modest pricing pressure from
products going onto drug tariffs and volume pressure from increased
competition. In addition, as a result of launching Melatonin in
June 2019, the revenue associated with the product is now
recognised in Commercial Medicines where it has been a key
contributor of growth.
The Aseptic Services business within UK Specials, which saw good
growth in H1, was impacted by COVID-19 in the final quarter.
Aseptic Services prepare and supply patient-specific, dose-banded
and batch-made aseptically prepared products and until COVID-19,
were benefiting from fulfilling a capacity constraint in the
market. The Group is investing in its Aseptic capability (both
incremental capacity and online ordering) and expects this to help
the business return to EBITDA growth in the current financial
year.
Following the implementation of ClinigenOne, the Group's
Enterprise Resource Planning (ERP) system, the Group is working
towards a unified digital platform. This will be a major
contributor to the future success of the Unlicensed Medicines
business, driving customer intimacy and extending and expanding
Clinigen's reach. Currently the Group has a digital service
oriented to Global Access, Clinigen Direct, and a complementary
service, Cliniport, oriented to Managed Access.
Clinigen Direct is the Group's digital search tool for HCPs to
source hard to access medicines with over 2,600 medicines
available. It also provides customer service support to help HCPs
navigate the regulatory hurdle in importing unlicensed medicines.
Since its launch, Clinigen Direct has received interest from HCPs
in over 150 countries.
This service is complementary to Cliniport, the Group's
customisable, scalable web portal which continues to be an
invaluable part of Clinigen's offering for its Managed Access
clients and strengthens its interaction with the customer. The
community of HCPs on Cliniport continues to build and now has
18,625 registered users (2019: 15,580).
Clinical Services (encompassing CTS and CSM)
Clinical Services aims to be the market leader in servicing
clinical trials and supplying quality-assured comparator medicines
internationally. Its strategic focus is on:
o Establishing Clinigen with customer compounds earlier in the product lifecycle (phase I/II)
o Improving visibility and quality of revenue streams through
diversification of customer base, longer term contracts and
exclusive supply arrangements
o Presenting product opportunities to the Unlicensed Medicines business operation
Net revenue in Clinical Services increased 15% (+1% on an
organic basis) to GBP162.2m (2019: GBP141.7m), whilst gross profit
increased by 18% (-4% on an organic basis) to GBP39.2m (2019:
GBP33.2m). The performance benefited from a full year's
contribution from CSM. The marginal decline in organic gross profit
was largely a consequence of clinical trials being delayed or
cancelled due to COVID-19 and was against a market backdrop which
management believes was down c.30-50% in Q4. Whilst the performance
of Clinical Services has improved notably following wins to support
the development of products against COVID-19 (both vaccines and
products to treat the disease), the overall clinical trial market
outlook remains uncertain given reduced activity by clients.
EBITDA increased 14% (-12% on an organic basis) to GBP22.6m
(2019: GBP19.8m). The increase in EBITDA was largely due to the
full year effect of the CSM acquisition, with the overall organic
performance impacted by the timing of investment in the CSM
platform to support long term growth which coincided with the
outbreak of
COVID-19.
The Clinical Services business continues to build capacity in
its platform in Europe and the US for future growth. Work continues
to harness the client synergies to bring together the package and
labelling, and legacy Clinigen comparator business to develop
deeper client relationships at the start of the product lifecycle.
The number of clients in Clinical Services continues to be strong
and diverse with 458 clients generating revenue in the financial
year, 362 from CSM alone. There were 13 clients which worked across
both the CTS and CSM businesses, 25 worked with Unlicensed
Medicines and nine worked with Commercial Medicines, demonstrating
both the synergy that currently exists and the potential
cross-selling opportunity.
CSM
The acquisition of CSM in October 2018 gives the Group a broader
complementary offering to the comparator sourcing market within
Clinical Services. It provides a diversified set of value-added
clinical services: comparator and ancillary sourcing, on-demand
specialist packaging, labelling, supply and distribution, and
biological sample management, along with infrastructure in the US,
Belgium and Germany.
Within CSM, the direct-to-patient model was a clear
differentiator against competitors, particularly during the
COVID-19 pandemic where more COVID-19 related work has been won
than has been delayed or cancelled, including notable large
contract wins in the final months of the financial year.
The earn-out period associated with CSM was completed on 31
December 2019 and since then, more meaningful steps have and are
being taken to integrate it into the Clinical Services business.
Business Development and strategic sourcing were previously working
under one leadership and management structure which has already led
to revenue synergies with CTS, with the expectation that this will
now increase. Since CSM's acquisition, 23 introductions have been
made to Unlicensed Medicines and 18 introductions have been made
from Unlicensed Medicines to Clinical Services, reinforcing the
links between the Group's business operations.
Since its acquisition, CSM has outperformed management
expectations, demonstrating excellent growth and has created a
resilient and robust platform in which its reach can be extended
across the other two of the Group's business. Post year end
deferred consideration of US$89.5m was paid to the sellers, with
the upfront consideration of US$151.9m representing 14.2x CY19
EBITDA as this outperformance lead to the maximum earnout
consideration being met.
CTS
The performance of this business has been encouraging even
though COVID-19 has led to a slowdown in customer enquiries.
Clinigen signed and delivered a significant contract win in April
2020. This multi-year contract, the largest in the division's
history, is with a large pharmaceutical company and will continue
to support the division in the medium term. Alongside this, the
business agreed terms on a Master Service Agreement with a large
global biopharma client that should lead to strong medium term
growth as clinical trial activity picks up.
The focus in CTS remains on improving service levels amongst the
existing client base and becoming more competitive with sourcing in
a highly competitive market. Business Development is focused on
leveraging the existing client base and rejuvenating older
relationships as well as developing revenue synergies with CSM.
Clinical Services pipeline
Clinical Services continues to be a trusted partner capable of
delivering high-quality services across the world with an extensive
understanding of the complex regulatory environment. These
strengths, combined with overlaying the services offered by CSM,
position the operation well to take advantage of the rapidly
developing market opportunity.
The Clinical Services pipeline is broadly in line with the prior
year.
Group infrastructure
The Group's ERP system was implemented in October 2019. The ERP
is designed to deliver automated, streamlined operational
activities and processes to increase the Group's efficiency and
productivity.
Upon implementation, several process issues were identified,
from order creation to shipping and billing, and whilst most were
resolved within weeks, some remained until the year-end, which is
not unusual in a project of this scope and scale. This included
delays in invoicing and subsequent cash collection which
contributed to a working capital outflow in H1, which partially
reversed in H2 and should continue to reverse during FY21. These
key concerns have been addressed with help from a specialist ERP
implementation firm and the Group is now working to maximise the
benefits of the ERP with the next stages of implementation to make
the business ready for unified digitisation in FY21.
The ERP is by far the Group's most extensive capital expenditure
project and it is a critical feature for leveraging the operational
benefit of the enlarged Group for the future. The operational
efficiency obtained from its implementation will allow the Group to
better compete on a global scale.
Shaun Chilton
Group Chief Executive Officer
FINANCIAL REVIEW
Clinigen has achieved a strong year of organic growth at net
revenue, adjusted gross profit and adjusted EBITDA with adjusted
gross profit growth in line with the Group's organic guidance. This
is in spite of the disruption caused by COVID-19 in the final
quarter, which impacted the Group by between 5% to 7% at adjusted
EBITDA, with an acute effect on Proleukin in particular. On top of
the strong organic growth we have seen operational leverage and the
benefits of prior year acquisitions help deliver earnings per share
(adjusted EPS) growth of 20%.
Cash generation and cash conversion in the year of 72% was below
historic levels, but represented a solid second half performance
(123%) after the working capital headwinds seen in H1 that should
continue to reverse during FY21. Management remains committed to
achieving a leverage ratio of 1.0x - 2.0x within 12-18 months, with
the delay to this caused by COVID-19, a generic to Foscavir and an
increased earn out consideration for CSM.
By business operation, both Clinical Services and Unlicensed
Medicines saw an impact from the COVID-19 pandemic that has
continued to dampen growth rates, but both have continued to
develop and broaden client relationships which bode well for the
future. Within Commercial Medicines organic growth was extremely
strong, and whilst the near term outlook has been impacted by both
COVID-19 and a generic entrant to Foscavir, the medium to long term
outlook remains very positive with the in-licensing of Erwinase and
exciting new opportunities for Proleukin. On top of this, the Group
is exploring new in-licensing opportunities to leverage across the
platform, that will both underpin the business strategy of focusing
on both unlicensed and licensed markets and demonstrate the
synergistic link between the divisions.
Summary adjusted income statement
Year ended 30 June Growth
2020 2019 Constant
Adjusted results(1) GBPm GBPm Reported currency(5) Organic(6)
------------------------------- ------- ------- ----------- ------------- -----------
Gross revenue 504.3 456.9 10% 10% 4%
------------------------------- ------- ------- ----------- ------------- -----------
Net revenue(2) 466.2 407.0 15% 15% 8%
------------------------------- ------- ------- ----------- ------------- -----------
Gross profit(3) 220.0 182.3 21% 21% 10%
------------------------------- ------- ------- ----------- ------------- -----------
Administrative expenses (89.6) (82.6) (9)%
EBITDA from joint venture 0.6 1.1 (46)%
------------------------------- ------- ------- ----------- ------------- -----------
EBITDA(4) 131.0 100.8 30% 31% 13%
------------------------------- ------- ------- ----------- ------------- -----------
EBITDA(4) as % net revenue 28.1% 24.8% 330bps
------------------------------- ------- ------- ----------- ------------- -----------
Depreciation and amortisation (11.1) (3.9)
------------------------------- ------- ------- ----------- ------------- -----------
EBIT 119.9 96.9 24%
------------------------------- ------- ------- ----------- ------------- -----------
Finance cost (11.4) (8.6)
------------------------------- ------- ------- ----------- ------------- -----------
Profit before tax 108.5 88.3 23%
Basic earnings per share 65.6p 54.4p 20%
------------------------------- ------- ------- ----------- ------------- -----------
Dividend per share 7.61p 6.7p 14%
------------------------------- ------- ------- ----------- ------------- -----------
1. The summary adjusted income statement presents Group results
on an adjusted basis excluding amortisation of acquired intangibles
and products, and other non-underlying items relating to
acquisitions (see note 3 and 4 of the condensed financial
statements).
2. Adjusted net revenue excludes Managed Access pass through
revenue which varies each period dependent on the mix of
programs.
Adjusted net revenue is a new alternative performance measure of
top line performance which is now used to manage the business as it
eliminates volatility in reported revenue which can arise as a
result of the mix of Managed Access Programs.
3. Adjusted gross profit excludes the impact of exceptional
charges from write down of inventories.
4. Adjusted EBITDA includes the Group's share of EBITDA from its
joint venture and is now shown after the adoption of IFRS 16. The
Group implemented IFRS 16 'Leases' for the first time in FY20 using
the modified retrospective approach. Comparatives have not been
restated and therefore are not comparable to the prior year.
Organic growth has been calculated excluding the impact of IFRS
16.
5. Constant currency growth is derived by applying the prior
year's actual exchange rate to this year's result.
6. Year-on-year comparisons referred to as 'organic' are a
measure of growth on a constant currency basis, excluding the
impact of business and product acquisitions. Acquisitions completed
in the previous financial year are included on a like-for-like
basis including the results for the acquisition where it is
included in the comparable historical period. Organic growth is
presented to aid the reader's understanding of the underlying
performance of the business. In previous reports, organic growth
was calculated on a pro forma basis with the comparative period
results before acquisition based on the vendors' previously
reported results. The like-for-like basis now used has been
necessary due to the limited reported financial information
available for the products' results prior to acquisition by
Clinigen. On a pro forma basis, the best estimate for organic
adjusted EBITDA growth for the year ended 30 June 2020 is 12%.
A number of adjusted measures are used by the Board in
reporting, planning and decision-making. Adjusted results reflect
the Group's trading performance and exclude amortisation of
acquired intangibles and products, and non-underlying costs
relating to acquisitions and one-off impairments which are
explained in note 4 of the condensed financial statements.
Overall, the Group delivered strong growth in revenues which
increased by 10% (4% on an organic basis) to GBP504.3m (2019:
GBP456.9m). Net revenues, adjusting for the pass through revenue in
the Managed Access business in Unlicensed Medicines, grew by 15%
(8% on an organic basis).
Group profits also grew strongly, with adjusted EBITDA up 31% on
a constant currency basis and adjusted EPS up 20%.
Profitability
As announced at the full year results in September 2019, the
Group has changed its reporting structure to a divisional EBITDA
profit-level model, akin to industry peers. Management believes
this will lead to better internal cost control and P&L
accountability whilst allowing for easier interpretation of results
by external stakeholders.
EBITDA by business 2020 2019 Growth
Constant
GBPm GBPm Reported currency(4) Organic(5)
--------------------------- ------- ------ --------- ------------- -----------
Commercial Medicines 84.3 54.4 55% 55% 34%
--------------------------- ------- ------ --------- ------------- -----------
Unlicensed Medicines 34.4 35.0 (2)% 1% (5)%
--------------------------- ------- ------ --------- ------------- -----------
Clinical Services 22.6 19.8 14% 13% (12)%
--------------------------- ------- ------ --------- ------------- -----------
Central unallocated costs (10.3) (8.4) (23)% (23)% (16)%
--------------------------- ------- ------ --------- ------------- -----------
131.0 100.8 30% 31% 13%
--------------------------- ------- ------ --------- ------------- -----------
Adjusted EBITDA increased by 30% (13% on an organic basis) to
GBP131.0m (2019: GBP100.8m). The growth in adjusted EBITDA was
driven by both the acquisitions made in FY19 and a strong
underlying performance. This performance was despite the difficult
trading conditions in the last few months of the financial year due
to COVID-19. On an organic basis, there were good performances in
Commercial Medicines, from CSM in Clinical Services and in
Unlicensed Medicines, from Global Access. These performances offset
weaker performances from CTS in Clinical Services and in Unlicensed
Medicines, from both Managed Access and the UK Specials
business.
The growth in adjusted EBITDA was higher than the growth in net
revenue due to operational leverage and the change in business mix
following the acquisitions. Adjusted EBITDA on an organic basis
increased by 13% benefiting from the higher growth of Commercial
Medicines and controlled investment in underlying overheads.
Towards the end of the period, management also carried out a number
of structural changes to both commercial and operational personnel,
with those cost savings to be reallocated towards higher growth
opportunities, reflecting the continued focus on driving
efficiencies across the Group.
Management continues to see further cost saving opportunities
from the enlarged platform, primarily from utilising the now
embedded ERP, from sourcing opportunities on key spend lines and on
challenging non-drug procurement costs.
See note 3 of the condensed financial statements for a
reconciliation of adjusted EBITDA to the IFRS equivalent
comparative.
Finance cost
The adjusted net finance cost was GBP11.4m (2019: GBP8.6m) with
the increase due to the Group's higher net debt position following
the recent acquisitions and as the Group's debt facility was fully
drawn down for the final quarter during the height of the COVID-19
period. The average interest charge on gross debt, excluding the
impact of IFRS 16, was 2.6% (2019: 2.8%). The reported net finance
cost was GBP19.7m (2019: GBP12.8m), after taking account of the
non-cash GBP8.1m unwind of discount on the deferred and contingent
consideration relating to the acquisitions (2019: GBP4.2m).
Reconciliation of adjusted profit before tax to reported profit
before tax
The table below shows the reconciling items between the adjusted
profit before tax of GBP108.5m (2019: GBP88.3m) and the reported
profit before tax of GBP22.6m (2019: GBP12.3m).
Year ended 30 June
------ ------
2020 2019
GBPm GBPm
------------------------------------------------------------ ------ ------
Adjusted profit before tax 108.5 88.3
------------------------------------------------------------ ------ ------
Amortisation of acquired intangibles and products (45.4) (37.8)
------------------------------------------------------------ ------ ------
Acquisition costs (0.5) (5.5)
------------------------------------------------------------ ------ ------
Restructuring costs (2.8) (6.4)
------------------------------------------------------------ ------ ------
Increase in the fair value of contingent consideration (11.8) (21.4)
------------------------------------------------------------ ------ ------
Impairment of assets related to acquired products (9.1) -
------------------------------------------------------------ ------ ------
Impairment of investment in joint venture (5.9) -
------------------------------------------------------------ ------ ------
FX revaluation on contingent consideration (2.0) (0.4)
------------------------------------------------------------ ------ ------
Unwind of discount on deferred and contingent consideration (8.1) (4.1)
------------------------------------------------------------ ------ ------
Tax on joint venture in South Africa (0.3) (0.4)
------------------------------------------------------------ ------ ------
Total adjustments (85.9) (76.0)
------------------------------------------------------------ ------ ------
Reported profit before tax 22.6 12.3
------------------------------------------------------------ ------ ------
The adjustments to profit before tax comprise costs relating to
amortisation, acquisitions, impairments and the Group's share of
the tax charge on the joint venture earnings of GBP0.3m (2019:
GBP0.4m).
Total amortisation was GBP50.1m (2019: GBP39.3m), of which
GBP30.4m (2019: GBP31.1m) related to acquired intangibles, GBP15.0m
(2019: GBP6.7m) related to acquired product licences, GBP4.2m
(2019: GBP1.1m) related to software and GBP0.5m (2019: GBP0.4m)
related to internally developed product licences.
Acquisition costs amounted to GBP0.5m (2019: GBP5.4m) relating
to the iQone, Proleukin and CSM acquisitions. Restructuring costs
were GBP2.8m (2019: GBP6.4m), in respect of one-off redundancies
primarily from the acquisition reorganisations as well as
preparations for any potential Brexit impact.
Impairment charges have been recognised against the Totect IP,
Totect short-dated stock and excess Foscavir active pharmaceutical
ingredient totalling GBP9.1m. Totect is facing challenging market
conditions with an increased number of generic competitors, and
whilst management has successfully increased the number of
indications for the product, the ability to achieve a suitable
return has reduced. Alongside this, a generic entrant to Foscavir
has required a review of the recoverability of the raw material
holding resulting in an impairment charge.
The Group's joint venture in South Africa has been impaired
following a reassessment of the likely future profitability of the
business due in part to the introduction of constraints to the
procurement policies related to broad-based black economic
empowerment.
There was a GBP2.0m (2019: GBP0.4m) foreign exchange charge from
revaluation of the contingent consideration on CSM and iQone which
is denominated in foreign currency.
Taxation
Taxation was GBP8.9m (2019: GBP7.1m), based primarily on the
prevailing UK and overseas tax rates. This charge is calculated as
GBP21.5m based on the adjusted profit of GBP108.5m, offset by a
credit of GBP12.6m in respect of the adjusted items.
The Group's adjusted effective tax rate (ETR) was 19.8% (2019:
20.0%). Given the increasing proportion of ex-UK activity, the
Group expects the ETR to increase c. 50-100bps in FY21.
Earnings per share
Adjusted basic EPS, calculated excluding amortisation of
acquired intangibles and products, and other non-underlying items,
increased by 20% to 65.6p (2019: 54.4p). The increase reflects the
Group's higher adjusted profit from operations, offset by dilution
and higher finance costs following the acquisitions in FY19 and the
related equity placing and debt re-financing.
Reported basic EPS was 10.3p (2019: 4.0p).
Dividend
The Directors are proposing to increase the final dividend to
5.46p per share (2019: 4.75p), resulting in a 14% increase in the
full year dividend to 7.61p per share (2019: 6.7p).
The final dividend will be paid, subject to shareholder
approval, on 2 December 2020 to shareholders on the register on 6
November 2020.
Cash flow and net debt
Operating cash flow of GBP94.8m (2019: GBP89.8m) reflects a
materially improved performance overall in H2 after the working
capital outflow seen in H1. Management expects the FY21 performance
to improve upon that delivered in FY20, as the working capital
headwinds seen in H1 FY20 continue to unwind.
Capital expenditure (excluding product acquisitions) was
GBP23.0m (2019: GBP19.0m), which includes GBP5.9m related to
warehouse, IT and other infrastructure investments, GBP10.7m
related to the Group ERP system, and GBP6.4m on new product
development. Capital expenditure for FY21 is expected to increase
marginally versus the prior year due to increased spend on
Proleukin product development more than offsetting reduced spend on
the ERP system.
The Group made two deferred consideration payments of US$30m for
the rights to Proleukin US during the financial year.
For CSM, the Group paid initial consideration of GBP115.5m
(US$151.9m) in cash on completion in October 2018 and has, post
year end, finalised and paid the additional contingent
consideration to the sellers US$89.5m. The total consideration
representing an EBTIDA multiple of 14.2x CY19 EBITDA.
The other main cash outflows were tax paid of GBP23.9m (2019:
GBP13.6m), interest paid of GBP10.3m (2019: GBP7.9m) and dividends
paid of GBP9.2m (2019: GBP7.7m).
Net debt as at 30 June 2020 of GBP311.9m, (GBP288.4m excl. IFRS
16 adjustment) represented leverage of 2.3x. Net debt is expected
to increase temporarily in H1 FY21 as operational cash flow is
offset by the deferred consideration payment for CSM alongside
planned capital expenditure. Leverage is therefore expected to peak
at this point at between 2.5x to 3.0x before reducing thereafter,
with FY21 set to end below 2.5x (broadly similar to FY20), and
management targeting a range of 1.0x to 2.0x within 12-18 months.
As a prudent measure, management has already obtained support from
its banking syndicate to lift the net debt/adjusted EBITDA covenant
limit from 3.0x to 3.5x for the next testing period.
Treasury management
The Group's operations are financed by retained earnings and
bank borrowings, and on occasion, the issue of shares to finance
acquisitions.
During the year, the debt facility has been increased from
GBP375m to GBP430m, comprising an unsecured GBP180m term loan with
a single repayment in 2023 and an unsecured revolving credit
facility of up to GBP250m. The incremental debt facilities are to
help cover the upcoming deferred consideration payments on CSM,
whilst providing headroom for future acquisitions should they
arise.
At the period end, there were two covenants that applied to the
bank facility: interest cover of not less than 4.0x and net
debt/adjusted EBITDA cover of not more than 3.0x, which was
extended to 3.5x for the June 2020 covenant testing date as a
precautionary measure (excluding IFRS 16). As at 30 June 2020,
interest cover was 13.3x and the net debt/adjusted EBITDA leverage
was 2.3x. The leverage ratio in the current financial year is
expected to peak post the CSM earnout payment in H1 and be broadly
flat by the end of the financial year before reducing thereafter in
FY22.
Borrowings are denominated in a mixture of sterling, euros and
US dollars, and are managed by the Group's UK-based treasury
function, which manages the Group's treasury risk in accordance
with policies set by the Board.
Clinigen reduces its exposure to currency fluctuations on
translation by typically managing currencies at Group level using
bank accounts denominated in foreign currencies. Where there is
sufficient visibility of currency requirements, forward contracts
are used to hedge exposure to foreign currency fluctuations.
The Group's treasury function does not engage in speculative
transactions and does not operate as a profit centre. The Group has
applied hedge accounting where permissible to match hedges to the
transactions to which they relate thereby reducing volatility in
the results which may arise from gains and losses on hedging
instruments.
Mid term guidance
The long-term fundamentals of the business and its end-markets
remain strong even if COVID-19 leads to a degree of near-term
uncertainty. As demonstrated in FY20, the Group is well positioned
to capture further share from its service focused end-markets
whilst revitalising and growing its product portfolio in the
Commercial Medicines business and expect to see further signs of
strategic progress in the coming year to support this outlook.
The Group's medium term guidance is for future organic net
revenue growth to be between 5% to 10%, with FY21 expected to be at
the lower end due to the impact of COVID-19, which is expected to
subside, and an expected launch of a generic Foscavir in the EU.
Given the above and the timing of contracted Proleukin shipments,
H1 is expected to be below the prior year followed by a return to
growth in H2. This will be more evident within Commercial Medicines
and Unlicensed Medicines, where the impact of COVID-19 has been
greater. Management will provide a further update at the AGM on 26
November 2020.
Growth in FY22 and beyond is expected to significantly
accelerate as Erwinase is onboarded and the Group continues to gain
share in the end-markets it serves. Management sees the potential
for higher organic growth as Proleukin revitalisation takes place
and as it gains traction within new indications.
Further operational leverage is not expected in FY21 due to the
headwinds of COVID-19 and a generic to Foscavir, alongside
additional investment into the commercial platform ahead of
onboarding Erwinase. Operational leverage is expected to increase
in FY22.
Currency sensitivity
The Group's activities expose it to currency risk primarily in
relation to the US dollar and euro. The Group uses forward
contracts to reduce the impact of this risk and therefore expect it
will be broadly neutral for the current financial year. If the
current exchange rates are assumed to apply throughout FY21, the
Group estimates it would have a 0% - 2% negative impact on adjusted
EBITDA. Current spot exchange rates to pound sterling as at 16
September 2020 are USD: 1.29; EUR: 1.09; ZAR: 21.15; AUD: 1.77.
Capital allocation
The Group's capital allocation framework exists in order to
prioritise the use of cash and maximise shareholder value whilst
retaining the flexibility to make value enhancing acquisitions. The
four principles within the framework are as follows:
-- Reinvest for organic growth
-- Maintain a progressive dividend policy
-- Aim to paydown and maintain net debt within a range of 1.0x
to 2.0x EBITDA on an ordinary basis
-- Make acquisitions in line with the Group's strategy with a disciplined approach to valuation
Principal risks facing the business
Clinigen operates an embedded risk management framework, which
is monitored and reviewed by the Board. There are a number of
potential risks and uncertainties that could have a material impact
on the Group's financial performance and position. These include
risks relating to the political environment, competitive threat,
counterfeit products penetrating the supply chain, compliance,
reliance on technology, cyber risk, foreign exchange, people,
COVID-19, and the identification, strategic rationale and
integration of acquisitions. These risks and the Group's mitigating
actions are set out in the Annual Report.
Nick Keher
Group Chief Financial Officer
Condensed consolidated income statement
for the year ended 30 June 2020
2020 2019
---------- -------------- ------- ---------- -------------- -------
Non-underlying Non-underlying
(note (note
(In GBPm) Note Underlying 3) Total Underlying 3) Total
-------------------------- ---- ---------- -------------- ------- ---------- -------------- -------
Revenue 3 504.3 - 504.3 456.9 - 456.9
Cost of sales (284.3) (4.9) (289.2) (274.6) - (274.6)
-------------------------- ---- ---------- -------------- ------- ---------- -------------- -------
Gross profit 3 220.0 (4.9) 215.1 182.3 - 182.3
Administrative expenses (100.7) (72.4) (173.1) (86.5) (71.4) (157.9)
Profit from operations 119.3 (77.3) 42.0 95.8 (71.4) 24.4
Finance income 5 - - - 0.1 - 0.1
( 4.2
Finance expense 5 (11.4) (8.3) (19.7) (8.7) ) (12.9)
Share of profit of
joint venture 0.3 - 0.3 0.7 - 0.7
-------------------------- ---- ---------- -------------- ------- ---------- -------------- -------
Profit before income
tax 108.2 (85.6) 22.6 87.9 (75.6) 12.3
Income tax expense 6 (21.2) 12.3 (8.9) (17.3) 10.2 (7.1)
-------------------------- ---- ---------- -------------- ------- ---------- -------------- -------
Profit attributable
to owners of the Company 87.0 (73.3) 13.7 70.6 (65.4) 5.2
-------------------------- ---- ---------- -------------- ------- ---------- -------------- -------
Earnings per share
(pence)
Basic 7 10.3 4.0
Diluted 7 10.2 4.0
-------------------------- ---- ---------- -------------- ------- ---------- -------------- -------
Condensed consolidated statement of comprehensive income
for the year ended 30 June 2020
2020 2019
---------- -------------- ------------------ ---------- -------------- -----
Non-underlying Non-underlying
(note (note
(In GBPm) Underlying 3) Total Underlying 3) Total
--------------------------------- ---------- -------------- ------------------ ---------- -------------- -----
Profit for the year attributable
to owners of the Company 87.0 (73.3) 13.7 70.6 (65.4) 5.2
Other comprehensive
income
items that may be reclassified
to profit or loss
Cash flow hedges 0.2 - 0.2 0.1 - 0.1
Currency translation
differences 2.7 - 2.7 7.4 - 7.4
--------------------------------- ---------- -------------- ------------------ ---------- -------------- -----
Total other comprehensive
income for the year 2.9 - 2.9 7.5 - 7.5
--------------------------------- ---------- -------------- ------------------ ---------- -------------- -----
Total comprehensive income
attributable to owners
of the Company 8 9.9 (73.3) 16.6 78.1 (65.4) 12.7
--------------------------------- ---------- -------------- ------------------ ---------- -------------- -----
All amounts relate to continuing operations.
Condensed consolidated statement of financial position
as at 30 June 2020
(In GBPm) Note 2020 2019
--------------------------------- ---- ------- --------
Assets
Non-current assets
Intangible assets 9 788.3 811.9
Property, plant and equipment 13.4 13. 6
Right-of-use assets 20.4 -
Investment in joint venture - 6.5
Deferred tax assets 7.2 2.8
--------------------------------- ---- ------- --------
Total non-current assets 829.3 834.8
Current assets
Inventories 43.5 35.4
Trade and other receivables 125.9 110.2
Derivative financial instruments 0.2 2.2
Cash and cash equivalents 10 143.1 83.5
--------------------------------- ---- ------- --------
Total current assets 312.7 231.3
--------------------------------- ---- ------- --------
Total assets 1,142.0 1,066 .1
--------------------------------- ---- ------- --------
Liabilities
Non-current liabilities
Trade and other payables 8.9 7.3
Loans and borrowings 10 450.7 335.9
Deferred tax liabilities 33.6 41.1
--------------------------------- ---- ------- --------
Total non-current liabilities 493.2 384.3
Current liabilities
Trade and other payables 194.9 235 .7
Corporation tax liabilities 3.7 7.3
Borrowings and lease liabilities 10 4.3 0.1
Derivative financial instruments 0.3 0.4
Total current liabilities 203.2 243 .4
--------------------------------- ---- ------- --------
Total liabilities 696.4 627 .7
--------------------------------- ---- ------- --------
Net assets 445.6 438 .4
--------------------------------- ---- ------- --------
Equity
Share capital 11 0.1 0.1
Share premium account 11 240.2 240.2
Merger reserve 88.2 88.2
Hedging reserve (0.1) (0.3)
Foreign exchange reserve 17.7 15.0
Retained earnings 99.5 95 .2
--------------------------------- ---- ------- --------
Total shareholders' equity 445.6 438.4
--------------------------------- ---- ------- --------
The notes on pages 25 to 33 form an integral part of these
condensed consolidated financial statements.
Condensed consolidated statement of cash flows
for the year ended 30 June 2020
(In GBPm) Note 2020 2019
----------------------------------------------- ---- ------ -------
Operating activities
Profit for the year before tax 22.6 12.3
Share of profit of joint venture (0.3) (0.7)
Net finance costs 5 19.7 12.8
----------------------------------------------- ---- ------ -------
Profit from operations 42.0 24.4
Adjustments for:
Amortisation of intangible fixed assets 9 50.1 39.3
Impairment of intangible fixed assets 9 4.2 -
Depreciation of property, plant and equipment 6.4 2.5
Impairment of investment in joint venture 4 5.9 -
Dividends received from joint venture - 0.8
Movement in fair value of derivatives 0.1 0.2
Increase in fair value of contingent
consideration 4 11.8 21.4
Currency revaluation on deferred consideration 4 2.0 0.4
Equity-settled share-based payment expense 3.5 3.0
----------------------------------------------- ---- ------ -------
Operating cash flows before movements
in working capital 126.0 91.9
Increase in trade and other receivables (15.6) (2.1)
Increase in inventories (8.6) (13.4)
(Decrease)/Increase in trade and other
payables (7.0) 13.4
----------------------------------------------- ---- ------ -------
Cash generated from operations 94.8 89.8
Income taxes paid (23.9) (13.6)
Interest paid (10.3) (7.9)
----------------------------------------------- ---- ------ -------
Net cash flows from operating activities 60.6 68.3
Investing activities
Purchase of intangible fixed assets (excluding
products) (20.1) (17.0)
Purchase of property, plant and equipment (2.9) (2.0)
Purchase of specialty pharmaceutical
products (58.4) (114.3)
Purchase of subsidiaries, net of cash
acquired - (118.0)
Net cash flows used in investing activities (81.4) (251.3)
Financing activities
Proceeds from issue of shares - 78.9
Proceeds from increase in loan 107.6 179.1
Loan repayments (17.1) (20.5)
Principal element of lease payments (3.4) -
Dividends paid 8 (9.2) (7.7)
----------------------------------------------- ---- ------ -------
Net cash flows from financing activities 77.9 229.8
----------------------------------------------- ---- ------ -------
Net increase in cash and cash equivalents 57.1 46.8
Cash and cash equivalents at beginning
of the year 83.5 36.3
Exchange gains 2.5 0.4
----------------------------------------------- ---- ------ -------
Cash and cash equivalents at end of the
year 143.1 83.5
----------------------------------------------- ---- ------ -------
Condensed consolidated statement of changes in equity
for the year ended 30 June 2020
Share
Share premium
capital account Foreign
(note (note Merger Hedging exchange Retained Total
(In GBPm) 11) 11) reserve reserve reserve earnings equity
--------------------------------- -------- -------- -------- -------- --------- --------- -------
At 30 June 2019 0.1 240.2 88.2 (0.3) 15.0 95.2 438.4
Impact of adopting IFRS
16 - - - - - (2.2) (2.2)
--------------------------------- -------- -------- -------- -------- --------- --------- -------
At 1 July 2019 0.1 240.2 88.2 (0.3) 15.0 93.0 436.2
Profit for the year - - - - - 13.7 13.7
Currency translation differences - - - - 2.7 - 2.7
Cash flow hedges
- Effective portion of
fair value movements - - - 0.3 - - 0.3
- Transfers to the income
statement (revenue) - - - (0.1) - - (0.1)
--------------------------------- -------- -------- -------- -------- --------- --------- -------
Total comprehensive income - - - 0.2 2.7 13.7 16.6
Share-based payment scheme - - - - - 3.5 3.5
Step-acquisition of QM
Specials - - - - - (1.6) (1.6)
Deferred taxation on share-based
payment scheme - - - - - 0.1 0.1
Dividends paid (note 8) - - - - - (9.2) (9.2)
--------------------------------- -------- -------- -------- -------- --------- --------- -------
Total transactions with
owners of the Company,
recognised directly in
equity - - - - - (7.2) (7.2)
--------------------------------- -------- -------- -------- -------- --------- --------- -------
At 30 June 2020 0.1 240.2 88.2 (0.1) 17.7 99.5 445.6
--------------------------------- -------- -------- -------- -------- --------- --------- -------
Share
Share premium
capital account Foreign
(note (note Merger Hedging exchange Retained Total
(In GBPm) 11) 11) reserve reserve reserve earnings equity
--------------------------------- -------- -------- -------- -------- --------- --------- -------
At 1 July 2018 0.1 161.3 86.0 (0.4) 7.6 94.9 349.5
Profit for the year - - - - - 5.2 5.2
Currency translation differences - - - - 7.4 - 7.4
Cash flow hedges
- Effective portion of
fair value movements - - - (1.1) - - (1.1)
- Ineffective portion of
fair value movements - - - 0.1 - - 0.1
- Transfers to the income
statement (revenue) - - - 1.1 - - 1.1
--------------------------------- -------- -------- -------- -------- --------- --------- -------
Total comprehensive income - - - 0.1 7.4 5.2 12.7
Share-based payment scheme - - - - - 3.0 3.0
Deferred taxation on share-based
payment scheme - - - - - (0.4) (0.4)
Tax credit in respect of
tax losses arising on exercise
of share options - - - - - 0.2 0.2
Issue of new shares - 78.9 2.2 - - - 81.1
Dividends paid (note 8) - - - - - (7.7) (7.7)
--------------------------------- -------- -------- -------- -------- --------- --------- -------
Total transactions with
owners of the Company,
recognised directly in
equity - 78.9 2.2 - - (4.9) 76.2
--------------------------------- -------- -------- -------- -------- --------- --------- -------
At 30 June 2019 0.1 240.2 88.2 (0.3) 15.0 95.2 438.4
--------------------------------- -------- -------- -------- -------- --------- --------- -------
1. Basis of preparation
The consolidated financial statements of Clinigen Group plc have
been prepared in accordance with International Financial Reporting
Standards, ('IFRSs') as adopted for use in the European Union and
IFRS Interpretations Committee interpretations (together 'adopted
IFRSs'), and with those parts of the Companies Act 2006 that are
applicable to companies that prepare financial statements in
accordance with IFRSs. The consolidated financial statements have
been prepared under the historical cost convention, as modified by
the revaluation of financial assets and financial liabilities
(including derivative instruments) at fair value through profit or
loss. All financial information presented in pounds sterling has
been rounded to the nearest GBP100,000.
The financial information, which comprises the condensed
consolidated income statement, condensed consolidated statement of
comprehensive income, condensed consolidated statement of financial
position, condensed consolidated statement of cash flows, condensed
consolidated statement of changes in equity and related notes, is
derived from the full Group financial statements for the year ended
30 June 2020 and does not constitute full accounts within the
meaning of section 435 (1) and (2) of the Companies Act 2006.
The Group Annual Report and Financial Statements 2020 on which
the auditors have given an unqualified report and which does not
contain a statement under section 498(2) or (3) of the Companies
Act 2006, will be delivered to the Registrar of Companies in due
course, and made available to shareholders in October 2020.
The preparation of financial statements in conformity with
adopted IFRS requires the use of certain critical accounting
estimates. It also requires Group management to exercise its
judgement in the process of applying the Group's accounting
policies. The Group makes certain estimates and assumptions
regarding the future. Estimates and judgements are continually
evaluated based on historical experience and other factors,
including expectations of future events that are believed to be
reasonable under the circumstances. In the future, actual
experience may differ from these estimates and assumptions. The
areas where significant judgments and estimates have been made in
preparing the financial statements and their effect are disclosed
in note 2 to the Group's statutory consolidated financial
statements for the year ended 30 June 2020.
The Group's strategy and forecasts, taking account of
sensitivities within the trading projections and possible changes
in trading performance, show that the Group has adequate resources
to continue in operational existence for the foreseeable future.
The Group is not immune from COVID-19, however, the impact on
trading has been relatively limited and is therefore not impacting
on the Group's ability to continue as a going concern. At 30 June
2020, the Group had GBP143m of cash balances available which
combined with the Group's positive cash generation from each of its
operations, provides sufficient funding for the near term
settlement of deferred consideration liabilities along with
sufficient liquidity for ongoing trading.
After making appropriate enquires, the directors have a
reasonable expectation that the Company and the Group have adequate
resources to continue in operational existence for at least twelve
months from the date of approval of the financial statements.
Therefore, the Company and Group continues to adopt the going
concern basis in preparing its financial statements. Further
information on the Group's borrowing facilities is given in note
10.
2. Changes in accounting policies
(a) New and amended standards, interpretations and amendments
adopted by the Group
IFRS 16 - Leases
The Group adopted IFRS 16 on 1 July 2019 using the modified
retrospective approach. Under the specific transitional provisions
in the standard, comparative information has not been restated. The
reclassifications and the adjustments arising from the new leasing
rules have been recognised in the opening balance sheet.
Until 30 June 2019, leases of property, plant and equipment were
classified as either finance or operating leases. Payments made
under operating leases were charged to profit or loss on a
straight-line basis over the period of the lease. From 1 July 2019,
leases are recognised as a right-of-use asset and a corresponding
liability at the date at which the leased asset is available for
use by the Group.
Each lease payment is allocated between reducing the liability
and a finance cost. The finance cost is charged to the income
statement over the lease period so as to produce a constant
periodic rate of interest on the remaining balance of the liability
for each period.
On adoption of IFRS 16, the Group recognised additional lease
liabilities in relation to leases which had previously been
classified as operating leases under the previous principles of IAS
17 Leases. These liabilities were measured at the present value of
the remaining lease payments, discounted using the Group's
incremental borrowing rate as of 1 July 2019 which was deemed to be
2.75%.
The associated right-of-use are measured on a retrospective
basis as if the new rules had always been applied. As above, the
Group's incremental borrowing rate has been used. In applying IFRS
16 for the first time, the Group has used the following practical
expedients permitted by the standard:
-- on initial application, IFRS 16 was only applied to contracts
that were previously classified as leases, the Group has elected
not to reassess whether a contract is, or contains, a lease at the
date of initial application. Instead, for contracts entered into
before the transition date the Group has relied on its assessment
made applying IAS 17 and IFRIC 4;
-- lease contracts with a duration of less than 12 months will
continue to be expensed to the income statement on a straight-line
basis over the lease term;
-- the lease term has been determined with the use of hindsight
where the contract contains options to extend the lease; and
-- reliance on previous assessments on whether or not leases are onerous.
IFRIC 23 - Uncertainty over Income Tax Treatment
The Group adopted IFRIC 23 on 1 July 2019. The interpretation
clarifies how to apply the recognition and measurement requirements
in IAS 12 Income Taxes when there is uncertainty over income tax
treatments. The Group has measured the effect of relevant uncertain
income tax positions using either the most likely amount or the
expected value amount depending on which method is expected to
better reflect the resolution of the uncertainty. Adoption of this
interpretation did not have a material impact on the Group's
financial statements.
There were no other new standards, interpretations or amendments
to standards that are effective for the financial year beginning 1
July 2019 that have a material impact on the Group's consolidated
financial statements.
(b) New standards, interpretations and amendments not yet
adopted
There are amendments to a number of existing standards which
have been endorsed by the EU but not yet adopted. These amendments
are not expected to have a material impact on the Group's
consolidated financial statements.
3. Segment information
The Group's reportable segments are strategic operating business
units that provide different products and service offerings into
different market environments. They are managed separately because
each operational business requires different expertise to deliver
the different product or service offering they provide.
Operating segments are reported in a manner consistent with the
internal reporting provided to the Chief Operating Decision Maker
(CODM) during the reporting year. The CODM has been identified as
the Executive Directors. The Group's operating segments are
Commercial Medicines, Unlicensed Medicines and Clinical
Services.
Operating segment results
The segmental performance measures have been changed from
revenue and gross profit to net revenue and adjusted EBITDA. These
are the segmental measures reported to and used by the CODM to
manage the business. Net revenue eliminates the volatility in
reported revenue which can arise from the pass through revenue as
the mix of charged and free of charge MA programs changes.
Segmental adjusted EBITDA is now used as it will lead to better
internal cost control and accountability whilst allowing for easier
interpretation of profitability of each segment by external
stakeholders.
2020 2019
-------------------------- ------------------------------- -------------------------------
Reported Adjusted Reported Adjusted
(In GBPm) Revenue Net Revenue EBITDA Revenue Net Revenue EBITDA
-------------------------- -------- ----------- -------- -------- ----------- --------
Commercial Medicines 156.7 156.7 84.3 110.3 110.3 54.4
Unlicensed Medicines 197.0 158.9 34.4 205.9 156.0 35.0
Clinical Services 162.2 162.2 22.6 141.7 141.7 19.8
Central unallocated costs
& eliminations (11.6) (11.6) (10.3) (1.0) (1.0) (8.4)
-------------------------- -------- ----------- -------- -------- ----------- --------
Segmental result 504.3 466.2 131.0 456.9 407.0 100.8
-------------------------- -------- ----------- -------- -------- ----------- --------
Net revenue is presented after excluding pass through revenue of
GBP38.1m (2019: GBP49.9m) from the Managed Access business within
Unlicensed Medicines.
2020 2019
------------------------------ ----------------------------------- ----------------------------------
(In GBPm) Underlying Non-underlying Total Underlying Non-underlying Total
------------------------------ ---------- -------------- ------- ---------- -------------- ---------
Reconciliation to reported
profit
Gross profit 220.0 (4.9) 215.1 182.3 - 182.3
Administrative expenses
excluding amortisation and
depreciation (89.6) (22.8) (112.4) (82.6) (33.6) (116.2)
EBITDA 130.4 (27.7) 102.7 99.7 (33.6) 66.1
------------------------------ ---------- -------------- ------- ---------- -------------- ---------
Analysed as:
Adjusted EBITDA including
share of joint venture 131.0 (27.7) 103.3 100.8 (33.6) 67.2
Joint venture EBITDA (0.6) - (0.6) (1.1) - (1.1)
EBITDA excluding share of
joint venture 130.4 (27.7) 102.7 99.7 (33.6) 66.1
------------------------------ ---------- -------------- ------- ---------- -------------- ---------
Amortisation and impairment (4.7) (49.6) (54.3) (1.5) (37.8) (39.3)
Depreciation (6.4) - (6.4) (2.4) - (2.4)
------------------------------ ---------- -------------- ------- ---------- -------------- ---------
Profit from operations 119.3 (77.3) 42.0 95.8 (71.4) 24.4
Finance costs (11.4) (8.3) (19.7) (8.6) (4.2) (12.8)
Share of joint venture profit 0.3 - 0.3 0.7 - 0.7
------------------------------ ---------- -------------- ------- ---------- -------------- ---------
Profit before income tax 108.2 (85.6) 22.6 87.9 (75.6) 12.3
------------------------------ ---------- -------------- ------- ---------- -------------- ---------
Analysed as:
Adjusted profit before tax
excluding share of joint
venture tax 108.5 (85.9) 22.6 88.3 (76.0) 12.3
Joint venture tax (0.3) 0.3 - (0.4) 0.4 -
Profit before tax including
share of joint venture tax 108.2 (85.6) 22.6 87.9 (75.6) 12.3
------------------------------ ---------- -------------- ------- ---------- -------------- ---------
Income tax expense (21.2) 12.3 (8.9) (17.3) 10.2 (7.1)
------------------------------ ---------- -------------- ------- ---------- -------------- ---------
Profit after tax 87.0 (73.3) 13.7 70.6 (65.4) 5.2
------------------------------ ---------- -------------- ------- ---------- -------------- ---------
(In GBPm) 2020 2019
---------------------------------- ----- -----
Breakdown of revenues by products
and services:
Products 397.3 410.7
Services 99.5 38.0
Royalties 7.5 8.2
504.3 456.9
---------------------------------- ----- -----
(In GBPm) 2020 2019
------------------------------------ ----- ------
Revenue arises from the location of
the customers as follows:
UK 144.1 159.6
Europe 135.8 107 .9
USA 121.4 90.7
South Africa 32.2 26 .9
Australia 24.8 20.4
Rest of World 46.0 51.4
504.3 456.9
------------------------------------ ----- ------
Assets and liabilities are reported to the Executive Directors
at a Group level and are not reported on a segmental basis.
4. Non-underlying items
Non-underlying items have been reported separately in order to
provide the reader of the financial statements with a better
understanding of the operating performance of the Group. These
items include amortisation of intangible assets arising on
acquisition and acquired products, one-off costs including business
acquisition costs, restructuring costs, changes in deferred and
contingent consideration, impairments and unwind of discount on
contingent consideration. The associated tax impact is also
reported as non-underlying.
(In GBPm) 2020 2019
----------------------------------------------------- ------ ------
Cost of sales
a) Impairment of Totect and Foscavir inventories 4.9 -
Administrative expenses
b) Acquisition costs 0.3 5.4
c) Restructuring costs (relating principally
to acquisitions) 2.8 6.4
d) Increase in the fair value of contingent
consideration 11.8 21.4
a) Impairment of IP related to Totect 4.2 -
e) Impairment of investment in joint venture 5.9 -
f) Foreign exchange revaluation on deferred
and contingent consideration 2.0 0.4
g) Amortisation of intangible fixed assets acquired
through business combinations and acquired products 45.4 37.8
----------------------------------------------------- ------ ------
72.4 71.4
Finance costs
h) Unwind of discount on deferred and contingent
consideration 8.1 4.1
b) Acquisition costs 0.2 0.1
----------------------------------------------------- ------ ------
8.3 4.2
Taxation
i) Credit in respect of tax on non-underlying
costs (12.3) (10.2)
Total non-underlying items 73.3 65.4
----------------------------------------------------- ------ ------
a) Impairment charges have been recognised against the Totect
IP, Totect short-dated stock and excess Foscavir active
pharmaceutical ingredient totalling GBP9.1m. Totect is facing
challenging market conditions with an increased number of generic
competitors, and whilst management have successfully increased the
number of indications for the product, the ability to achieve a
suitable return has reduced. Alongside this, a generic entrant to
Foscavir has required a review of the recoverability of the raw
material holding resulting in an impairment charge.
b) Acquisition costs relate to legal fees and financing costs
for the Group's recent product and business acquisitions.
c) Restructuring costs have been incurred during the period in
respect of the one off integration of acquired businesses as well
as preparations for any potential Brexit impact.
d) The increase in the fair value of contingent consideration
relates to the final earn out calculation for the CSM
acquisition.
e) A fair value exercise was undertaken on the Group's joint
venture undertaking Novagen Pharma Pty Limited and as a result of
this valuation and future expectations for the business, management
has taken the decision to fully impair the investment.
f) Contingent consideration on CSM and iQone is denominated in
foreign currency. The revaluation of these liabilities is treated
as non-underlying as they relate to one-off items and do not
reflect the underlying trading of the Group.
g) The amortisation of intangible assets acquired as part
business combinations (namely brand, trademarks and licences,
customer relationships, and contracts) and acquired products, is
included in non-underlying due to its significance and to provide
the reader with a consistent view of the underlying costs of the
operating Group.
h) The non-cash unwind of the discount applied to the deferred
and contingent consideration on the acquisitions of Proleukin, CSM,
and iQone.
i) The tax credit in respect of non-underlying items reflects
the tax benefit on the costs incurred.
5. Finance income and expense
(In GBPm) 2020 2019
---------------------------------------------- ---- -----
Bank interest 9.6 7.6
Borrowing costs 0.1 0.2
Amortisation of facility issue costs 1.1 0.9
Unwind of discount lease liabilities 0.6 -
---------------------------------------------- ---- -----
Underlying finance cost 11.4 8.7
Unwind of discount on deferred and contingent
consideration on acquisitions 8.1 4.1
Acquisitions finance costs 0.2 0.1
Total finance cost 19.7 12.9
---------------------------------------------- ---- -----
Bank interest income - (0.1)
---------------------------------------------- ---- -----
Net finance expense 19.7 12.8
---------------------------------------------- ---- -----
6. Income tax
(In GBPm) 2020 2019
-------------------------------------------------- ------ -----
Current tax expense
UK corporation tax 12.8 9.9
Overseas tax at local prevailing rates 6.7 5.8
Adjustment in respect of prior years 0.6 (1.1)
-------------------------------------------------- ------ -----
Total current tax expense 20.1 14.6
Deferred tax credit
Origination and reversal of temporary differences (13.6) (7.5)
Adjustment in respect of prior years 0.1 -
Adjustments in respect of tax rates 2.3 -
Total deferred tax credit (11.2) (7.5)
-------------------------------------------------- ------ -----
Total income tax expense 8.9 7.1
-------------------------------------------------- ------ -----
The tax on the Group's profit before income tax differs from the
theoretical amount that would arise using the standard rate of
corporation tax in the UK applied to profit for the year as
follows:
(In GBPm) 2020 2019
-------------------------------------------------- ----- -----
Profit before income tax 22.6 12.3
-------------------------------------------------- ----- -----
Expected tax charge based on corporation tax
rate of 19.0% 4.3 2.3
Expenses not deductible for tax purposes other
than amortisation on acquired intangibles 2.7 5.8
Tax relief for employee share schemes (0.9) (0.3)
Adjustments to tax charge in respect of prior
years 0.7 (1.1)
Foreign tax credit (0.2) -
Recognition of previously unrecognised tax losses (0.5) -
Change in deferred tax rate 2.3 -
Higher rates of taxes on overseas earnings 0.5 0.4
Total income tax expense 8.9 7.1
-------------------------------------------------- ----- -----
In line with Finance Act 2016, from April 2020, the UK corporate
tax rate was to reduce to 17.0%. The Government announced in the
Budget on 11 March 2020, that the rate applicable from 1 April 2020
would remain at 19.0% and this was enacted on 17 March 2020. This
19% rate has been applied in the deferred tax valuations based on
the expected timing of when such assets and liabilities will be
recovered.
7. Earnings per share ('EPS')
(In GBPm) 2020 2019
--------------------------------------------------- ----- -----
Profit after tax used in calculating reported
EPS 13.7 5.2
--------------------------------------------------- ----- -----
Underlying profit after tax used in calculating
adjusted EPS 87.0 70.6
--------------------------------------------------- ----- -----
Number of shares (million)
Weighted average number of shares 132.7 129.8
Dilution effect of share options 2.0 2.2
--------------------------------------------------- ----- -----
Weighted average number of shares used for diluted
EPS 134.7 132.0
--------------------------------------------------- ----- -----
Reported EPS (pence)
Basic 10.3p 4.0p
Diluted 10.2p 4.0p
Adjusted EPS (pence)
Basic 65.6p 54.4p
Diluted 64.6p 53.5p
--------------------------------------------------- ----- -----
EPS is calculated based on the share capital of the Parent
Company and the earnings of the combined Group.
Diluted EPS takes account of the weighted average number of
outstanding share options being 1,996,046 (2019: 2,225,514).
8. Dividends
(In GBPm) 2020 2019
-------------------------------------------------- ---- ----
Final dividend in respect of the year ended
30 June 2019 of 4.75p (2019: 3.84p) per ordinary
share 6.3 5.1
Interim dividend of 2.15p (2019: 1.95p) per
ordinary share paid during the year 2.9 2.6
-------------------------------------------------- ---- ----
9.2 7.7
-------------------------------------------------- ---- ----
The Board proposes to pay a final dividend of 5.46p per ordinary
share, subject to shareholder approval, on 2 December 2020, to
shareholders on the register on 6 November.
9. Intangible assets
Customer Trademarks Computer
(In GBPm) Brand Contracts relationships & licences software Goodwill Total
--------------------- ----- --------- -------------- ----------- --------- -------- ------
At 1 July 2019 54.9 7.7 95.1 251.4 19.8 383.0 811.9
Additions - - - 11.4 13.7 - 25.1
Amortisation charge (4.5) (1.6) (21.2) (18.4) (4.4) - (50.1)
Impairment charge - - - (4.2) - - (4.2)
Exchange differences (0.1) (0.2) 0.5 3.9 0.1 1.4 5.6
At 30 June 2020 50.3 5.9 74.4 244.1 29.2 384.4 788.3
--------------------- ----- --------- -------------- ----------- --------- -------- ------
10. Net debt
(In GBPm) 2020 2019
-------------------------- ------- ------
Revolving credit facility 250.8 187.5
Term loan 183.0 151.3
Lease liabilities 23.7 0.2
Unamortised issue costs (2.5) (3.1)
-------------------------- ------- ------
Gross borrowings 455.0 335.9
Cash (143.1) (83.5)
-------------------------- ------- ------
Net debt 311.9 252.4
-------------------------- ------- ------
During the year, the multi-currency debt facility was increased
from GBP375m to GBP430m comprising an unsecured GBP180m term loan
with a single repayment in 2023 and an unsecured revolving credit
facility of up to GBP250m. At 30 June 2020, the facility is
denominated in GBP264m sterling (2019: GBP219m), EUR90m euros
(2019: EUR90m), and US$108m US dollars (2019: US$48m). The term
loan and RCF are revalued at the period end foreign exchange rates
for reporting purposes. However, the banking facility position is
based on exchange rates prevailing at the time the facility is
drawn in the foreign currency.
At the year end, there were two covenants that applied to the
bank facility: interest cover of not less than 4.0x and net
debt/adjusted EBITDA cover of not more than 3.5x (excluding IFRS
16), with the leverage covenant limit raised from 3.0x as a matter
of prudence given the near term uncertainty caused by COVID-19. As
at 30 June 2020, interest cover was 13.3x and the net debt/adjusted
EBITDA leverage was 2.3x. There were no instances of default,
including covenant terms, in either the current or the prior
year.
During the year, interest was payable on a tiered scale based on
the level of borrowing. The applicable interest rate on amounts
drawn down was up to 2.0% plus LIBOR.
11. Called up share capital and share premium account
Number of Called up Share premium
shares share capital account
('000s) (GBPm) (GBPm)
-------------------- --------- -------------- -------------
At 1 July 2018 122,286 0.1 161.3
Issue of new shares 10,193 - 78.9
-------------------- --------- -------------- -------------
At 30 June 2019 132,479 0.1 240.2
Issue of new shares 420 - -
-------------------- --------- -------------- -------------
At 30 June 2020 132,899 0.1 240.2
-------------------- --------- -------------- -------------
The Company does not have a limited amount of authorised share
capital.
12. Leases
On 1 July 2019, the Group adopted IFRS 16 'Leases' using the
modified retrospective approach. Under the specific transitional
provisions in the standard, comparative information has not been
restated and the adjustments arising from the new standard have
been recognised in the opening balance sheet on 1 July 2019.
The Group leases various offices, warehouses, equipment and
vehicles. Rental contracts are typically made for fixed periods of
three to ten years but in the case of property, they often have
extension options which are normally exercised. Lease terms are
negotiated on an individual basis and contain a wide range of
different terms and conditions.
Until the end of the previous financial year, leases of
property, plant and equipment were classified as either finance or
operating leases. Payments made under operating leases (net of any
incentives received from the lessor) were charged to profit or loss
on a straight-line basis over the period of the lease.
From 1 July 2019, leases are recognised as a right-of-use asset
and a corresponding liability at the date at which the leased asset
is available for use by the Group. Each lease payment is allocated
between the liability and finance cost in the cash flow statement.
The finance cost is charged to profit or loss over the lease period
(through underlying finance costs) so as to produce a constant
periodic rate of interest on the remaining balance of the liability
for each period. The right-of-use asset is depreciated over the
shorter of the asset's useful life and the lease term on a
straight-line basis.
On adoption of IFRS 16, the Group recognised lease liabilities
in relation to leases which had previously been classified as
'operating leases' under the principles of IAS 17, 'Leases'. These
liabilities were measured at the present value of the remaining
lease payments, discounted using the Group's incremental borrowing
rate as of 30 June 2019 which was 2.75%.
For leases previously classified as finance leases, the carrying
amount of the lease asset and lease liability immediately before
transition are recognised as the carrying amount of the
right-of-use asset and the lease liability at 1 July 2019.
(In GBPm)
---------------------------------------------------- -------------------
Operating lease commitments disclosed as at
30 June 2019 22.6
Leases previously recognised as finance leases
under IAS 17 0.2
Discounted using the borrowing rate as at 30
June 2019 (2.75%) (1.8)
Short term leases recognised on a straight-line
basis (0.3)
----------------------------------------------------- -------------------
Lease liabilities recognised as at 1 July 2019 20.7
New lease liabilities recognised from new contracts
and contract modifications 6.4
Unwind of discount recognised in finance costs 0.6
Repayment of capital element and payment of
accrued interest (4.0)
----------------------------------------------------- -------------------
Lease liabilities recognised at 30 June 2020 23.7
----------------------------------------------------- -------------------
The associated right-of-use assets were measured on a
retrospective basis as if the new rules had always been
applied.
(In GBPm) 2020 1 July 2019
------------------- ---- -----------
Land and buildings 19.5 16.5
Other 0.9 1.0
------------------- ---- -----------
20.4 17.5
------------------- ---- -----------
Due to the differences arising between the lease liabilities and
the right-of-use assets on transition, an adjustment of GBP2.9m has
been recognised through retained earnings. As a result of this
adjustment, an associated GBP0.7m deferred tax asset has also been
recognised through retained earnings.
In applying IFRS 16 for the first time, the group has used the
following practical expedients permitted by the standard:
-- reliance on previous assessments of whether a contract is or contains a lease;
-- reliance on previous assessments of whether leases are onerous;
-- the accounting for operating leases, with a remaining lease
term of less than 12 months as at 1 July 2019, as short-term
leases;
-- the exclusion of initial direct costs for the measurement of
the right-of-use asset at the date of initial
-- application; and
-- the use of hindsight in determining the lease term where the
contract contains options to extend or terminate the lease.
The expense recognised relating to short-term leases during the
year was GBP0.3m. At 30 June 2020 there were no outstanding
commitments for short term or low value leases. The total cash
outflow in respect of lease liabilities during the year was
GBP4.0m.
The impact of the new standard on the income statement for the
financial year was an increase in EBITDA of GBP4.0m (2019: GBP3.8m)
reflecting the removal of the lease charge recognised under IAS 17
through administrative expenses, offset by increased depreciation
of GBP3.4m (2019: GBP3.1m) on the right-of-use assets, and an
increase in finance costs of GBP0.6m (2019: GBP0.5m) relating to
the unwind of the discount on the lease liabilities.
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