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Edited Transcript of ALAPH.L earnings conference call or presentation 20-Sep-22 8:30am GMT

Half Year 2022 Alliance Pharma PLC Earnings Call London Sep 20, 2022 (Thomson StreetEvents) -- Edited Transcript of Alliance Pharma PLC earnings conference call or presentation Tuesday, September 20, 2022 at 8:30:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Andrew Timothy Franklin Alliance Pharma plc - CFO & Executive Director * Cora Maeve McCallum Alliance Pharma plc - Head of IR & Corporate Communications * Peter Jonathan Butterfield Alliance Pharma plc - CEO & Executive Director ================================================================================ Conference Call Participants ================================================================================ * Andrew Mark Whitney Investec Bank plc, Research Division - Analyst * Edward Thomason Liberum Capital Limited, Research Division - Research Analyst * Natalia Webster RBC Capital Markets, Research Division - Associate * Paul Cuddon Numis Securities Limited, Research Division - Director for Healthcare Equity Research * Samuel England Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Peter Jonathan Butterfield, Alliance Pharma plc - CEO & Executive Director [1] -------------------------------------------------------------------------------- Good morning, everybody, and welcome to the Alliance 2022 Interim Results Presentation. I'm pleased to see so many of you in-person this morning and look forward to meeting those who are listening on the webcast very soon. As always, this morning, I'm joined by Andrew Franklin, our CFO; and Cora McCallum, our Head of Investor Relations and Corporate Communications. Turning our attention to today's presentation. I'll begin with a reminder of our strategy and how this has supported our progress in the first half of 2022 before handing over to Andrew to walk you through the detail of the results. I'll also touch briefly on the CMA case, as much as I'm able to do so in terms of timings and what happens next. I'll then finish with the summary and a reminder of the outlook for the remainder of the year before opening the floor to questions. This slide serves as a reminder of our strategy. We're committed to delivering solid organic growth through investment in marketing excellence supported by innovation and development. We remain focused on our Consumer Healthcare portfolio, which benefits from the in-house regulatory knowledge embedded in our legacy Prescription Medicines business. This synergy has become more important as the consumer healthcare market evolves and regulatory oversight increases. We aim to further enhance organic growth through selective, complementary acquisitions, the most recent of which we completed in March with the ScarAway brand from Perrigo. More on that a little bit later. We maintain an active review of acquisition opportunities, focused on the consumer healthcare market where we look to leverage our established global platform, particularly in the U.S. and APAC regions. This strategy is underpinned by our investments in people and in building a sustainable business so that Alliance can continue its purpose to improve the lives of consumers and patients through making available a range of clinically valuable health care products. This strategy supported as well. Despite the challenging operational environment in H1 2022, we've invested in our business, completed a highly strategic acquisition and progressed the development of several proprietary new products. Revenues increased on a reported basis, demonstrating the value of our portfolio and international diversification. Now when we presented to you back in March, we highlighted that our performance would be more heavily weighted to H2 than in previous years due to our anticipated revenue trajectory for Nizoral and for Amberen. Shortly after those results on the 28th of March, Shanghai went into a severe COVID-related lockdown. This created disruption in our supply chain, as we highlighted in our AGM statement in May, delaying some sales into H2 and further increasing the second half weighting. Following the easing of lockdowns, our supply chain is stabilizing and delayed orders have now shipped and performance is on track. Our strategy remains unchanged, and this slide details the progress we're making with innovation and development. As we mentioned at the full year results, we've recently strengthened this part of our business with the establishment of a dedicated innovation and development team. And in early 2022, we launched our first product from the new I&D platform, Kelo-Cote Kids, a [medication] developed specifically for use in children from the age of 3 months upwards. That launch has been extremely successful, resulting in a 20% market share position in the cross-border e-commerce children's scar treatment market in China in only 3 months. We submitted new product innovation approvals in both the U.K. and Germany and expect to launch Kelo-Cote Kids in these markets in 2023. I'm also excited to announce the next 2 significant products that we'll launch this year. Kelo-Cote Sheets in the cross-border e-commerce channel in China and Canker-X in the U.S. The Kelo-Cote Scar Sheet launch closes a gap in our scar treatment offering in China, where we previously only had gels and sprays for sale. Scar Sheets represent around 4% of the cross-border e-commerce scar treatment market by value versus 15% in the U.S. So we see an opportunity for market expansion. Scar Sheet formulations are the preferred treatment in cases such as eyelid surgery and c-sections. And we believe there's an opportunity for consumers to use sheets in conjunction with gels, thereby increasing the potential value per transaction. We intend to launch the sheet in the China domestic online market once the necessary regulatory approvals have been received. Now turning to Canker-X. Canker-X is our first proprietary brand launch. It's an extension of the Aloclair brand, offering a differentiated treatment for mouth ulcers, specifically for the U.S. market. Canker-X has clinically validated claims and will be the only product in the category that is both benzocaine free and alcohol free, meeting a real consumer demand. A number of leading retailers have already committed to stocking the product, which we estimate to have annual net sales potential in the low single million dollars. We envisage spending some GBP 1 million to GBP 2 million per annum on I&D going forward with an aim to generate 10% of net consumer sales from new product innovation in the future. Acquiring complementary products into our portfolio remains a key part of our strategy, and I'm delighted that we closed a highly strategic acquisition in March during the first week of our results roadshow, in fact, which again demonstrates the strength of the business development team we have here at Alliance. We acquired ScarAway, the second largest brand in the U.S. scar treatment market and the U.S. rights to Kelo-cote, completing our worldwide portfolio for this brand. This acquisition was integrated into our business very quickly in around 4 months, partly because we only had to deal with one territory, albeit the largest consumer market in the world, but also because we've already invested in our U.S. infrastructure following the acquisition of Amberen in December 2021. We spent $19.4 million or then GBP 14.6 million on this acquisition, equating to approximately 2x sales, a multiple which reflected some supply issues that the vendor was experiencing. With our expertise in managing CMOs and our strong in-house supply chain management team, we were confident that these issues could be resolved fairly quickly. Our confidence proved correct, and I'm pleased to tell you that ScarAway sales are running in line with our expectations. Our in-house I&D team are already developing some ScarAway line extensions, which I hope to be able to share with you in the near future. Our corporate development team remains busy and has a multitude of potential deals that it is assessing. As a reminder, we adopted targeted approach to acquisitions, seeking leading brands which have a differentiated clinically valuable claim set in our existing geographies. So now let's turn our attention to the operational performance of H1 2022. As I've already mentioned, we anticipated a weaker start to the year than usual due to our anticipated revenue trajectories for Amberen and Nizoral in particular. But the unexpected lockdown in Shanghai compounded this weakness and revenues declined 2% adjusted for currency. Whilst Consumer Healthcare revenues declined at 3% at constant currency due to a softer performance of each of our 3 key brands, I'm pleased to say that the base consumer business grew 15%, demonstrating the power of our diversified portfolio. Prescription Medicines also had another solid performance. We've spoken about the ScarAway acquisition already. So I'd like to talk a little more about our 3 key brands now. This slide explains the performance of our 3 key brands in H1. I will then detail the drivers of H2 performance to provide a bridge to the consensus expectations for full year '22. Revenues from the Kelo-Cote franchise rose 5% to GBP 22.9 million, but declined 3% in constant currency. Adjusting for the recent acquisition and currency tailwinds, like-for-like revenues for the Kelo-Cote franchise declined 12%, mainly due to lower volumes from our new China cross-border e-commerce partner. As we've already explained, the lockdown in Shanghai disrupted the supply of products into China and led to a decline in the CBEC market for scar treatment. However, the online domestic market grew and Kelo-Cote gained market share. We also successfully launched Kelo-cote Kids in this channel in April. Revenues in H1 came ahead of our original expectations. And as I've said before, we captured 20% share of the CBEC children scar market in China in only 3 months. Amberen sales were down 25% in constant currency, with challenging comparators in the bricks-and-mortar market for the whole category and increasing competition online. We've adopted a very targeted approach to our investments in the brand, focusing resources on the faster growth, higher value e-commerce market. We've worked hard to refresh our claims set during the period in order to support our product differentiation and premium pricing and launch new market assets accordingly. Our marketing campaigns reinforce the message that Amberen has a clinically validated formulation and is not merely the combination of a number of ingredients, which might have shown benefits in trials on an individual basis. Turning now to Nizoral. Sales declined 12% at constant currency. However, during the period, we finally completed the marketing authorization transfer from Johnson & Johnson in China, our largest market, and appointed a new top-tier distributor. The lockdown in Shanghai meant that the transition to a new distributor took a little longer than expected, meaning some sales were delayed from June into July. Our new distributor offers a larger sales force than the one we inherited from J&J and has fewer key products to focus on, meaning a greater proportion of resources can now be dedicated to Nizoral. Outside of China, our activation campaigns are gaining traction with a campaign in South Korea, which we highlighted at our full year '21 results, driving 39% growth in in-market sales for the first 4 months of the year versus the equivalent period last year. So what gives us confidence that the second half performance in each of these brands will deliver the sales expectations of the market? This slide aims to bridge the gap between H1 reported revenues and full year consensus expectations. You'll see that we've taken the reported H1 revenues and adjusted for the delayed Nizoral sales and the underperformance of Kelo-Cote in cross-border versus our expectations before lockdown. We've also removed the ScarAway revenues to derive at a pro forma underlying H1 revenue. We've then shown the implied additional revenues in Nizoral, Kelo-Cote, Prescription Medicines and other Consumer Healthcare to reach consensus sales for full year '22. As we are unable to quantify the shortfall in Amberen and because of the consensus has already lowered expectations for this brand, we've included Amberen in Other Consumer Healthcare for this exercise. Looking at Nizoral first, we anticipated a step-up in sales in H2 due to the timing of our various activation campaigns. As I've already mentioned, the campaign in South Korea, which was launched in Q4 '21, drove 39% increase in sales in the first 4 months of this year. Similar campaigns were launched in Thailand and Australia in July, and other 2 markets where Nizoral holds category leadership. We also held a promotional campaign week in Guangzhou, China in August to coincide with national haircare week. We were also excited about the ability of our new Chinese distribution partner to drive sales growth. Furthermore, we gained marketing authorization clearance in Vietnam, in May, allowing us to reenter that market after a 2-year hiatus. Turning to Kelo-Cote. I'm glad to report that lockdowns have eased in China and that our colleagues in Shanghai are back together in the office there. We continue to work closely with our cross-border e-commerce distribution partner to optimize the sales channel. Our B2C channel is well developed. And in September, our Kelo-Cote flagship online store was awarded a prestigious Tmall Global Award for surpassing CNY 100 million in annual sales for the first time. We've refined our strategy to increase our presence in the larger B2B channel, incorporating additional distributor support with associated orders expected in quarter 4 to meet midterm demand. We also anticipate continued growth in Kelo-Cote Kids formulation in China and the launch of Kelo-cote Sheets, which, in addition to a full 6 months of ScarAway sales in the U.S. should deliver strong sales momentum. Our Other Consumer Healthcare business continues to grow well, and we anticipate strong performance in Aloclair and MacuShield in particular. With regards to Amberen, our new advertising campaigns are already showing new and improved user engagement, which allows for more targeted and more efficient use of marketing spend. Our investments in the brand continues with new packaging ready for launch in quarter 4 '22 and a pipeline of new formulations in development to drive longer-term growth. Finally, we continue to anticipate continued robust performance from the Prescription Medicines business. So I hope you understand why we believe a step-up in revenues in H2 is achievable. As we detailed in our RNS, our full year expectation includes several large distributor orders in quarter 4, the timing of which is dependent on the rate of recovery in those markets. However, the second 2 blocks on this chart really are business as usual for us. This slide shows some of our new creative assets, which are designed to illustrate Amberen's differentiation and highlight our new claim that 91% of women in our trial experienced a reduction in hot flashes. We also highlight that this is a product with over 12,000 5-star reviews on Amazon. We remain committed to Amberen. It's a well-respected brand in an underdeveloped market. And whilst it had a tough year this year, we see significant growth potential over the coming years. We've also continued to strengthen our business during the period, progressing the rollout of our ERP system to complete the integration of the North American business such that all 3 U.S. brands, including ScarAway, will be on our global D365 platform by the end of September. We've continued to evolve our office infrastructure, opting to close our Chester office rather than renew the lease with those colleagues now hybrid working from home and Chippenham, and we've relocated our Paris office to a more modern, fit-for-purpose premise. I'm pleased that we continue to make good progress on sustainability. You'll notice that we've enhanced the sustainability section of our Investor Relations website, simplifying our sustainability framework under 3 main themes of people, planet and product and making key information easier to find. Our environmental strategy has developed further. And today, we announced our net-zero timeframe for our Scope 1 and 2 emissions. We anticipate reaching net-zero by 2030 with an interim reduction target of 65% by 2025. We've reached out to all our contract manufacturers to understand their Scope 1 and 2 emissions so that we can improve the calculation of our Scope 3 emissions as we move to set a net-zero target for these in the near future. We've also conducted a complete audit and analysis of our packing estate to progress our sustainable packaging strategy and are now identifying key areas of focus. I hope to update you on these further at our full year results in March next year. So it's been a busy first half across the business. I'd now like to hand over to Andrew to talk you through the financial details. -------------------------------------------------------------------------------- Andrew Timothy Franklin, Alliance Pharma plc - CFO & Executive Director [2] -------------------------------------------------------------------------------- Thanks much indeed, Pete, and good morning to everybody. As you've already heard, the first half was a challenging period for Alliance, yet we delivered a 1% see-through revenues growth of GBP 81.6 million, boosted by the acquisition of ScarAway and some foreign currency tailwinds. Changes primarily in sales mix led to a 2% decline in gross profit and a 170 basis point reduction in gross profit margin to 62.1%. As Peter, has already highlighted, we increased investments in the business to improve our operating capabilities and boosted the level of marketing support provided to a number of our brands, whilst maintaining good cost control through a targeted approach in our spending. Consequently, underlying EBITDA declined 5% to GBP 21.5 million. Underlying profit before tax decreased only 2% to GBP 19.7 million, resulting from lower net financing costs due to exchange gains, which offset a slightly higher underlying amortization charge following the successful implementation of our ERP system in May. With an underlying tax rate of 20.8%, 30 bps higher than for the period last year, our underlying basic earnings per share decreased 3% to 2.9p. And I'm pleased to announce that an interim dividend of 0.592p per share, an increase of 5% on last year's interim dividend will be paid on the 19th of January, 2023 to shareholders on the register on the 23rd of December, 2022. As Peter has already talked through the detail of our key brands, Kelo-Cote, Amberen, and Nizoral, I'll focus on the other consumer brands, which reported a 15% sales growth with strong performances in Aloclair, up 50% due in part to distributor restocking; recovery in Vamousse sales as children returned to school; and a 6% growth in MacuShield, our product for eye health. Hydromol and Forceval were also strong performers within the Prescription Medicines portfolio, up 22% and 9%, respectively in the first half last year. And as shown on the slide, Consumer Healthcare represents 70% of total group sales, broadly in line with the prior year. This slide details our balance sheet and cash flow headlines. Free cash flow for the period was GBP 5.1 million, with net debt increasing GBP 16.6 million in the period following the acquisition in March last -- this year of ScarAway and the U.S. rights to Kelo-Cote. As a result of this acquisition, our net debt-to-EBITDA ratio increased to 2.05x at the period end, comfortably below our banking covenants of 3x. With good cash generation expected in the second half this year, we expect this ratio to reduce to about 1.8x by the end of the year. This leverage is slightly higher than anticipated when we gave our trading update in July and is due to the anticipated timing of sales and associated cash flows in the fourth quarter. However, the direction of travel is clear. This slide walks through the cash and debt movements in more detail. Cash flow from operations was GBP 8.4 million, which is partially held back by the outflow of working capital of GBP 14.5 million due primarily to the timing of sales following a record trading month in June, with CapEx of GBP 0.5 million, which tracked below our run rate implied in our full year forecast as we managed our cash flows carefully in the period. Our free cash flow more than covered our dividend and CapEx requirements for the first half with the majority of the increase relating to ScarAway and the ScarAway acquisition in March. As a reminder, we have a GBP 165 million revolving credit facility of which GBP 31 million is currently undrawn, and we held GBP 29 million worth of cash on hand at the end of the period. We also detailed in the appendix additional technical guidance for 2022. You'll note we have modestly reduced our anticipated CapEx this year and now anticipate spending some GBP 2 million to GBP 3 million versus the previous GBP 3 million to GBP 4 million guidance we gave in March. And we've also increased our net debt guidance to between GBP 90 million and a GBP 100 million following the acquisition of ScarAway, the timing of sales anticipated in the second half, the impact of currency movements on our non-sterling loans. I know there has been a lot of focus on cost inflation due to the current environment, and we have been cushioned to a certain extent by the longer lead-times and inventory holdings in our business. We have deployed various mitigation measures, including contingency stock holding of raw materials and componentry within our supply chain such that we've been able to delay and offset pricing pressures in the first half to a large extent. However, with most of the stock now utilized, we will, like all of us, be more exposed to general market conditions. That said, forward commodity forecast suggests a stabilization of prices in the midterm. For reference, on a full year basis, approximately half of our cost base relates to the price we pay for finished goods, warehouse and to distribute our products and approximately 1/4 of our spend relates to labor. Of the remaining 25%, approximately 15% is marketing related, which to a certain extent, is discretionary and 10% is for overhead. Finally, we have the ability to pass on some cost inflation onto the consumer through price rises, although this is generally not possible for the reimbursed Prescription Medicines portfolio. And we also continue to look in our manufacturing and supply chain network for efficiency benefits. And with that, I'll hand back to Pete. -------------------------------------------------------------------------------- Peter Jonathan Butterfield, Alliance Pharma plc - CEO & Executive Director [3] -------------------------------------------------------------------------------- Thank you, Andrew. Thank you. So before I provide a comment on the outlook for the year, I also wanted to provide an update on the CMA cases. This is relatively new news. As most of you are aware, in May 2019, Alliance announced that a CMA had issued a statement of objections to 4 companies, including Alliance alleging anticompetitive agreements in relation to the sale of prescription prochlorperazine, a small out-licensed product in Alliance's portfolio from June 2013 to July 2018. Alliance out-licensed prochlorperazine to a distributor in 2013 in return for an agreed fixed transfer price. Since that time, Alliance has had no involvement or control over and did not benefit from the in-market pricing of the product, which is entirely managed by the distributor. Alliance recorded annual revenues of GBP 1.9 million at peak in 2015 and revenues of GBP 0.7 million in 2021, representing approximately 0.4% of the group's turnover that year. The CMA's decision does not concern any other product in Alliance's portfolio. In February 22, the CMA issued its findings that all 4 companies had infringed competition law and imposed fines, including a GBP 7.9 million fine for Alliance. As we've already said, we strongly refute the findings and lodged our appeal with the Competition Appeal Tribunal in April. I want to reassure you that we take our responsibility for compliance extremely seriously and have supported the CMA throughout the investigation. We believe we have been prudent by providing for the fine in full at the end of 2021, and we also continue to believe that there is no case to answer. I also want to highlight the long timeframe for this case. The appeal will be heard next year in early June, will wrap up in late July, with a verdict towards the end of 2023. Only if we fail in our appeal, will the case commence against the directors. This case will continue in the background, but I'm lucky to be supported by a strong management team, and we remain focused on business as usual. So in summary, we've navigated the operational challenges of H1 really well and further developed the business, whilst maintaining tight control of costs. We completed a highly strategic U.S. acquisition to further leverage our platform. We continue to invest to support our key brands and have significantly progressed our I&D pipeline with 3 proprietary new products launched or launching in 2022 and more planned for 2023. We've also continued the momentum of our sustainability strategy to set a net-zero target for our Scope 1 and 2 emissions and gather the necessary information to be able to set a net-zero target for our Scope 3 emissions in the near future. Whilst the operating environment remains challenging, we anticipate strong sales growth across many of our major brands in H2, including Kelo-Cote and Nizoral as we continue to work closely to integrate our new distribution partners and launch new products to grow our market share. Our full year expectation includes certain large distributor orders in quarter 4 to meet increased demand, but the timing of these is always -- as always, subject to the rate of recovery in those markets. We remain committed to ensuring that consumers can access our brands in the event of potential volatility in supply chains in the future. And as usual, we'll continue to monitor the situation closely. Looking to the midterm, we anticipate a stabilization of prices for goods and support services, and we continue to review our manufacturing and distribution network to look for efficiency benefits. Our base business remains strong with further new product launches expected in 2023 to secure future growth. So thank you very much for your continued interest in Alliance. I'm now happy to take your questions. Thank you. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Andrew Mark Whitney, Investec Bank plc, Research Division - Analyst [1] -------------------------------------------------------------------------------- It's Andrew from Investec. Just one on Kelo-Cote and China's zero COVID policy. There are other regions which are still locked down, aren't there, in China at the moment. Is the thinking that, that sort of continues for the rest of the year, i.e., the current situation is what underpins your expectation for Kelo-Cote in 2H? -------------------------------------------------------------------------------- Peter Jonathan Butterfield, Alliance Pharma plc - CEO & Executive Director [2] -------------------------------------------------------------------------------- That's right. Obviously, we experienced quite a severe lockdown in Shanghai, a major hub for us and everybody else within China. And I think from what we're seeing, we are at a -- it's very difficult to call where COVID will run out to. But we're quite fortunate in the fact that we have 2 routes into China, one is cross-border and the other one is domestic as well. And actually, in that period, Kelo-cote grew quite nicely in market with the domestic supplier. So yes, I think the -- to your question, that assumption underpins our year-end. -------------------------------------------------------------------------------- Andrew Mark Whitney, Investec Bank plc, Research Division - Analyst [3] -------------------------------------------------------------------------------- And then the net debt target is 1.8x for the year-end. And does that impact your thinking around potential for further acquisitions in the near term? Or is there any change there? Or you could -- would you still go ahead unchanged and think about ways to finance it. -------------------------------------------------------------------------------- Peter Jonathan Butterfield, Alliance Pharma plc - CEO & Executive Director [4] -------------------------------------------------------------------------------- I think if I answer the sort of acquisitions and where we are with that, we have a lot that comes across our desk. We're also very conscious that we want to drive real synergy in the platform that we have right now. So the types of things that we're looking at are tactical bolt-ons, which make perfect sense for our platform right now. So nothing too large at the moment. I think it's fair to say. -------------------------------------------------------------------------------- Andrew Timothy Franklin, Alliance Pharma plc - CFO & Executive Director [5] -------------------------------------------------------------------------------- I think that that's right. As you said the direction of travel is clear. It's that whilst we levered up to acquire the ScarAway brand, the cash flow we expect to see in the second half is going to be reasonably strong, which will bring it down and we continue cash generation next year as well. So we've got plenty of room. Also our covenants are 3x, so we've got plenty of headroom, but we certainly wouldn't be able to go in any event. -------------------------------------------------------------------------------- Andrew Mark Whitney, Investec Bank plc, Research Division - Analyst [6] -------------------------------------------------------------------------------- And just the last quick one. The ERP, is that fully rolled out? And do you see some benefits from that coming through in the future? -------------------------------------------------------------------------------- Andrew Timothy Franklin, Alliance Pharma plc - CFO & Executive Director [7] -------------------------------------------------------------------------------- So ERP, so we've successfully launched it for the whole of the U.S. market. So APAC and China are the remaining markets to go live, but they were tactically put and phased it in that way. We would expect that to then -- they would come live during next year. So we're rolling out that global platform. With regard to synergy benefits, I think where we see it is around the speed of information we then we're able to get a report out of the system and we're looking at working capital requirements. So that's largely where we will expect to see some form of synergy gains. -------------------------------------------------------------------------------- Samuel England, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [8] -------------------------------------------------------------------------------- Sam from Berenberg. First question. What's the uptake in Kelo-Cote Kids in China ahead of your original expectations? What do you see is the long-term market opportunities. -------------------------------------------------------------------------------- Peter Jonathan Butterfield, Alliance Pharma plc - CEO & Executive Director [9] -------------------------------------------------------------------------------- Yes, the long-term market is pretty good for Kelo-Cote Kids, not just in China, but across different markets. So it was ahead of our expectations, particularly through cross-border. We will be launching that in the domestic market as well. That takes time to get the registration through, but very quietly confident that that Kelo-Cote Kids serves a nice part of the market. We've worked hard on the license to get usage from 3 months upwards as well, and it's an incredibly effective product. So I think the marketing team has done a great job in positioning that and there's definitely more to come from that. And we've seen uptake, particularly in the premium B2C channel for that. So that's helped contribute to Kelo-Cote's growth there and the results that we're starting to see on Tmall. So it's early days, but we're quite confident with that brand. -------------------------------------------------------------------------------- Samuel England, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [10] -------------------------------------------------------------------------------- Great. And then on Amberen, do you still see the same sort of longer-term market opportunity with that product that you did when you bought it? And is it just an execution type issue? -------------------------------------------------------------------------------- Peter Jonathan Butterfield, Alliance Pharma plc - CEO & Executive Director [11] -------------------------------------------------------------------------------- Yes, we do. It's -- the markets had a tough time. I think if you look at that as a whole, across bricks and mortar, it struggled in the first half of last year. We firmly believe in Amberen as a proposition. The brand characteristics are excellent. It's been established for quite some time. The user feedback is plain to see with the Amazon reviews that we have. And our data is very strong as well. So that product works. It's now about execution and making sure that we grab market share in that particular marketplace. So that's where it lies down to. But yes, we're fully behind Amberen. -------------------------------------------------------------------------------- Natalia Webster, RBC Capital Markets, Research Division - Associate [12] -------------------------------------------------------------------------------- Natalia Webster from RBC. I've just got 2 ones, just to follow up on Amberen. And I was just wondering if you could give us a bit more color on the competitors you see in the space in the U.S. and the differentiation there? My second question is on the large stocking orders in Q4. Are you able to provide us with an idea of the magnitude of these, so we can have an idea on their sales number for the full year if these don't go through. -------------------------------------------------------------------------------- Peter Jonathan Butterfield, Alliance Pharma plc - CEO & Executive Director [13] -------------------------------------------------------------------------------- Yes. So taking Amberen first. If we're looking at the competitive marketplace, there's one main one that we've always been open about that, that's Estroven, which has a slightly larger range. And there's also own label as well within that marketplace too. So the differentiation that Amberen has, though, is it's formulation, which is proprietary. And as we've stated in the presentation, revolves around the combination of those products rather than just putting different products together in a pack and claiming differentiation. So what we've done is we've beefed up our claim set quite substantially with our scientific affairs team at Alliance, and we feel we have a good proposition right now with that 91% claim. And in terms of quarter 4, we always have a second half weighted performance within the business. We're not going to give guidance on exactly what quarter 4 looks like, but it is 3 months. It's not all at the end of December. So we'll have a good handle on outlook as we move through. So we certainly won't leave people on a cliff hedge or anything like that, no. And we're confident in the forecast that we have. But as we have 100 distributors within the business, there always is a little bit of lumpiness towards the year-end. We just thought it's prudent to highlight that. -------------------------------------------------------------------------------- Paul Cuddon, Numis Securities Limited, Research Division - Director for Healthcare Equity Research [14] -------------------------------------------------------------------------------- It's Paul from Numis. Just 2 questions as well. You've owned ScarAway now for a few months. So if you could just elaborate on how you see kind of that product developing within the U.S. and potentially beyond? And then secondly, just underlying growth of Kelo-Cote within China, taking out the distributor effects. Are you still seeing good kind of growth kind of in the underlying market or has that been impacted by your change of distributor? -------------------------------------------------------------------------------- Peter Jonathan Butterfield, Alliance Pharma plc - CEO & Executive Director [15] -------------------------------------------------------------------------------- Yes. Yes, 2 good questions. So, ScarAway has done quite a few things for -- I'll talk about what ScarAway has done for us in that market and then what we see with ScarAway moving forward. So that's provided a brand with a lot of synergy, obviously, with Kelo-Cote, our main brand. It's #2 in that marketplace, but we have some plans through I&D to start growing that considerably. There is a lot of synergy across things like the kids presentations and the sheets that we can use in other markets. So for us that's been terrific. It's not as big a market as China as we know, but there's certainly quite a lot of potential there for that particular brand, and we're putting behind that brand quite a large push without giving too much away on things like e-commerce, our point of sale as well. And we have a new distribution partner that we're working with in the U.S. who we're super excited about. So lots to be confident with that brand. The main thing we were worried about when we brought it on was the supply issues, which the guys have fixed really well and got on to that. And yes, we're very comfortable with that acquisition and the price we paid. I know that will generate a super return as well. In terms of Kelo-Cote demand, we definitely are seeing that coming back in China. We transferred to a new partner in cross-border e-commerce who've been superb in B2C. So on to the premium platforms, doing a great job there, perhaps a little underweight in B2B, which is a larger part of the market. That's the traded part of the market, but we feel that we have a new distribution set up there now that we've worked hard with them on and we're confident for year-end. The demand is absolutely there for Kelo-cote. It's about making sure we take as much as we can in terms of proprietary sales because we also have to keep an eye on counterfeit as well, and we're doing more than we've ever done on that. So without doubt, that midterm is looking bright for Kelo-cote. -------------------------------------------------------------------------------- Paul Cuddon, Numis Securities Limited, Research Division - Director for Healthcare Equity Research [16] -------------------------------------------------------------------------------- And probably just another question on kind of cost of living pressures around the world. I mean, do you see any potential impacts on your portfolio or are there any opportunities where you think your portfolio might offer better value than other brands that are out there? -------------------------------------------------------------------------------- Peter Jonathan Butterfield, Alliance Pharma plc - CEO & Executive Director [17] -------------------------------------------------------------------------------- Yes. It's one that -- so when we look back to the last recession in 2008, Consumer Healthcare as a whole actually grew a little bit, and it's a relatively resilient sector and taking aside the Prescription Medicines business, which is relatively immune to economic cycles. So we see there's -- where our products are placed there's certainly at the -- its certainly premium priced. However, the reason they're premium priced is they work. So brands like MacuShield and brands like Amberen, our annuity brands that people take, they feel the difference and they make a real difference to people's lives. So they're one of the last things to go. That said, with private label, that's something we've just got to watch and make sure that we're on point with regards to that with some of our retail partners. That's probably the biggest sort of overall threat, but the brands are very, very strong. They've been established in the markets for a long time, and they really make a difference. So I think the sector in itself is very resilient, as I've said, and I think our brands are pretty well placed, given their clinical benefit. -------------------------------------------------------------------------------- Edward Thomason, Liberum Capital Limited, Research Division - Research Analyst [18] -------------------------------------------------------------------------------- Edward Thomason from Liberum Capital. So I just wanted to ask actually a couple of questions just on cost pressure, particularly on salaries. Do we still expect a bit of greater pressure on salaries in H2? And should we build guidance probably on the margin as well? -------------------------------------------------------------------------------- Andrew Timothy Franklin, Alliance Pharma plc - CFO & Executive Director [19] -------------------------------------------------------------------------------- So we do continue to see cost pressures across the business. And certainly, within the staffing side, we built that already into our models. But -- and we clearly differentiate the salary and cost pressures around the different regions of the world. But it's there, so there's no question about it. So we just got to keep a careful eye on it. As we saw about 25% of our cost base is labor related. So you can work out some costs, some increases from them. -------------------------------------------------------------------------------- Edward Thomason, Liberum Capital Limited, Research Division - Research Analyst [20] -------------------------------------------------------------------------------- And just on the margin guidance for the full year. We obviously saw it come down in the interim but. -------------------------------------------------------------------------------- Andrew Timothy Franklin, Alliance Pharma plc - CFO & Executive Director [21] -------------------------------------------------------------------------------- Yes, we expect that to sort of be maintained a little bit just around that level going for this second half. We are -- as I say, we have a relatively long inventory holding periods within the business. And whilst we're seeing -- working our way through that inventory, we don't expect to see a massive fall off just because of the cost increases coming through. As I say, Peter and I mentioned before about our contract manufacturers where we look at synergies where we can get better efficiencies through them through that network. -------------------------------------------------------------------------------- Edward Thomason, Liberum Capital Limited, Research Division - Research Analyst [22] -------------------------------------------------------------------------------- Okay. And then just on FX, there's been big movements since post year-end. Can you just remind us of your exposure not only on the revenue line, but also on the cost line? -------------------------------------------------------------------------------- Andrew Timothy Franklin, Alliance Pharma plc - CFO & Executive Director [23] -------------------------------------------------------------------------------- So we have -- more than half our profits are generated within the sterling environment. We have cost base both in euros and in dollars, so we're able to offset both to some extent. And as you know that our debt as well is covered both in euros, dollars, and sterling. So that helps it from mitigate to some extent from currency movements on the leverage. But as you saw in the first half, we had an FX tailwind of circa GBP 2 million. So at the moment where the dollar is moving, we're gaining a little bit as well, second half. -------------------------------------------------------------------------------- Edward Thomason, Liberum Capital Limited, Research Division - Research Analyst [24] -------------------------------------------------------------------------------- Okay. And last question just relates to actually silicon sheets launching in China. Is there any reason why we shouldn't presume that is the ScarAway product being rebranded? -------------------------------------------------------------------------------- Peter Jonathan Butterfield, Alliance Pharma plc - CEO & Executive Director [25] -------------------------------------------------------------------------------- We also have some other sheet formulation as well out. So there is the opportunity to take the ScarAway brand across and that technology, but we also -- we're working on sheets before. And in the ScarAway acquisition has just helped to accelerate that on a global basis. But for China, we have a different sheet technology. -------------------------------------------------------------------------------- Cora Maeve McCallum, Alliance Pharma plc - Head of IR & Corporate Communications [26] -------------------------------------------------------------------------------- So we have a few questions from the webcast. Our first is from Charles Weston from RBC Europe. Charles asks, could we start to see some impact from the new Amberen marketing by the end of 2022 in terms of monthly market shares? Or should we be looking at H1 2023? -------------------------------------------------------------------------------- Peter Jonathan Butterfield, Alliance Pharma plc - CEO & Executive Director [27] -------------------------------------------------------------------------------- Yes. Thank you, Charles. Thanks for your question. We're looking in our numbers at H1 '23 for that recovery to come through. And that said, if it comes through a little bit quicker, that will be upside within the business, but we're confident in the new claim set. -------------------------------------------------------------------------------- Cora Maeve McCallum, Alliance Pharma plc - Head of IR & Corporate Communications [28] -------------------------------------------------------------------------------- Okay. And another from Charles is, in the absence of your inventory stocking, what would have inflation in effects have been in your PL for H1? Sorry, there's a few typos there. -------------------------------------------------------------------------------- Andrew Timothy Franklin, Alliance Pharma plc - CFO & Executive Director [29] -------------------------------------------------------------------------------- We would have seen a slight increase in cost. But again, we're running on inventory levels, which are similar to how we've run in the past. So we went through -- even through Brexit and COVID, et cetera. So we've got about -- we had about 180 days of on average month of inventory on hand. So it would have been a little bit more, but not materially so. -------------------------------------------------------------------------------- Cora Maeve McCallum, Alliance Pharma plc - Head of IR & Corporate Communications [30] -------------------------------------------------------------------------------- And we have a question from [Paul Hawkins]. Paul asks, regarding the large Q4 distributor orders, we're seeing crucial to meeting full year expectations, what could lead them to fail to meet expectations? -------------------------------------------------------------------------------- Peter Jonathan Butterfield, Alliance Pharma plc - CEO & Executive Director [31] -------------------------------------------------------------------------------- I think I've already answered that before in the question that came before. -------------------------------------------------------------------------------- Cora Maeve McCallum, Alliance Pharma plc - Head of IR & Corporate Communications [32] -------------------------------------------------------------------------------- And then our last question is from Mark Atkinson from atkinvest. He asks, can you please provide some guidance on the rationale for the CMA finding against Alliance Pharma given that outwardly, the company stood to make no financial benefit from any possible infringement of competition law. -------------------------------------------------------------------------------- Peter Jonathan Butterfield, Alliance Pharma plc - CEO & Executive Director [33] -------------------------------------------------------------------------------- No, I think I've been fairly full and open actually this morning on that and given as much as I can, given the ongoing nature of that case, I don't want to speculate in public on that. -------------------------------------------------------------------------------- Cora Maeve McCallum, Alliance Pharma plc - Head of IR & Corporate Communications [34] -------------------------------------------------------------------------------- So that's all our questions from the webcast. So I would like to pass back to -- for any closing remarks. -------------------------------------------------------------------------------- Peter Jonathan Butterfield, Alliance Pharma plc - CEO & Executive Director [35] -------------------------------------------------------------------------------- I think that's that. I'd like to say thank you all for coming along in person. It's great to see such a full room this morning. Thank you all for your support. And Andrew and I will remain around for the next sort of 10 minutes or so to meet you all in-person. And thank you for those that have joined online as well. Thank you. -------------------------------------------------------------------------------- Andrew Timothy Franklin, Alliance Pharma plc - CFO & Executive Director [36] -------------------------------------------------------------------------------- Thanks so much.