Final Results
Hikma Pharmaceuticals Plc
22 March 2007
Hikma Pharmaceuticals PLC
Preliminary results announcement
for the year ended 31 December 2006
LONDON, 22 March 2007 - Hikma Pharmaceuticals PLC ('Hikma')(LSE:HIK)(DIFX:HIK),
a multinational pharmaceutical group focused on developing, manufacturing and
marketing a broad range of generic and in-licensed pharmaceutical products,
today reports its preliminary results for the year ended 31 December 2006.
Revenue up 20.9% to $317.0 million
Operating profit up 8.7% to $75.2 million
Profit before tax up 17.4% to $75.6 million
Profit attributable to shareholders up 24.3% to $54.5 million
Diluted earnings per share up 9.5% to 31.0 cents
Research and development costs up 10.8% to $18.3 million
• Achieved revenue growth for the Group of 20.9% with particularly strong
performance in the Branded and Injectable businesses whose revenues
increased by 39.9% and 37.1% respectively
• Delivered 24.3% growth in profit attributable to shareholders
• Consolidated our position in the fast growing Saudi Arabian and the
wider GCC market through the acquisition of the remaining 52.5% share of JPI
not previously owned by Hikma
• Substantially increased capacity, with the addition of a new
manufacturing plant in Algeria, the completion of our new cephalosporin
plant in Portugal, and the expansion our facilities in Jordan and the US
• Launched 23 new products, received 191 regulatory approvals and
submitted 88 regulatory filings during the year
Commenting on the results, Samih Darwazah, Chairman and Chief Executive of
Hikma, said:
'We are very pleased with the performance of Hikma in our first full year as a
listed company. Our diverse business model continues to provide strong growth,
particularly in our Branded and Injectable businesses, which more than
compensated for the industry-wide market challenges in the Generic business in
the US.
In 2006, we consolidated our strong position in Saudi Arabia and completed
construction of our state-of-the-art injectable cephalosporin plant in Portugal,
continuing to deliver on the objectives we promised at the IPO. This year, we
have continued this trend, recently acquiring Ribosepharm, and we look forward
to 2007 with considerable confidence.'
Enquiries:
Hikma Pharmaceuticals PLC
Bassam Kanaan, Chief Financial Officer On the day Tel: +44 (0)7776 477 050
Susan Ringdal, Investor Relations Director Thereafter Tel: +44 (0)20 7399 2760
Brunswick Group
Jon Coles / Justine McIlroy /
Alexandra Tweed Tel: +44 (0)20 7404 5959
Hikma Pharmaceuticals PLC's presentation to analysts and investors will be
webcast live at 09:30 on 22 March 2007 and can be accessed via the Group's
website at www.hikma.com. It will be available as an archive to replay via the
website from 12:00 noon.
CHAIRMAN AND CHIEF EXECUTIVE'S REVIEW
Overview
In our first full year as a listed company, Hikma has delivered strong financial
results, benefiting from the strength and diversity of our business model. In
accordance with our strategy, we have achieved excellent performances in both
the Branded and Injectable businesses, which have more than compensated for the
challenging market conditions in our Generic business in the United States.
We are already well on our way to achieving the main objectives set out at the
time of our IPO. Since then, we have repaid $50 million in outstanding debt. We
have increased capacity, having completed and commenced production at our
Algerian plant, completed the construction of our new dedicated cephalosporin
plant in Portugal and invested in improvements at our Jordanian, Italian and US
manufacturing facilities. We have also begun to execute our acquisition
strategy, through two significant acquisitions.
Financial results
The Group performed well in 2006, achieving revenue of $317.0 million, up 20.9%
from 2005. Gross margin for the Group was 50.0%, down from 51.8% in 2005, but
still very strong when compared to our industry peers. Operating profit grew by
8.7% to $75.2 million, while operating margins decreased to 23.7%, compared to
26.4% in 2005, primarily as a result of increased overheads related to our new
Algerian plant, the continued price erosion in the Generic business and an
increase in the Group's general and administrative expenses. The Group's profit
attributable to shareholders increased by 24.3% to $54.5 million and diluted
earnings per share increased by 9.5% to 31.0 cents.
Business highlights
We ended 2006 with a total of 176 products in our portfolio in 397 dosage
strengths and forms, including the 23 products launched during the year and 26
under-licence products. During 2006, we were granted 191 regulatory approvals
across all geographies. In addition, we submitted a total of 88 regulatory
filings, including 54 new product applications. As of 31 December 2006, we had a
total of 117 pending approvals in Jordan, the United States and Europe alone,
and 105 products under development. In addition, at JPI we have 125 products
pending approval. (1)
In our Branded business, we were able to leverage the investment made in sales
and marketing in 2005 to drive significant growth across both existing and newer
markets. Through these efforts we achieved market share gains in each of our
three largest markets - Algeria, Saudi Arabia and Jordan. These results were
achieved despite disruption in the Algerian market caused by the implementation
of a new reference pricing regime. In Algeria, we have delivered double-digit
growth compared to 2005 as a result of the introduction of new products and the
commencement of production at our new manufacturing facility.
We have continued to consolidate our strong position in the MENA region through
the acquisition of the remaining 52.5% shareholding in JPI. The benefits of the
excellent platform we have created for accessing the GCC market are already
being seen. JPI contributed $11.7 million in sales for the four months ended 31
December 2006. For the first eight months of the year, and in previous years,
JPI was treated as an associate.
----------------------
(1) Definitions of products, filings and approvals are provided in the business
review.
In our Injectable business, we delivered strong sales growth as we continued to
develop our sales and marketing infrastructure across all three regions. We now
have a strong platform from which to drive future sales in each region. Sales
were particularly strong in the MENA region, especially in Saudi Arabia and
Sudan, where we established new customer relationships and distribution
channels. Sales growth was also strong in Europe, and especially in Germany,
where our distribution agreements with Hospira are enhancing our product
offering and facilitating the penetration of our products in the European
market. In the United States, we set up a specialised distribution company,
Hikma Pharmaceuticals (USA) Inc., with a dedicated sales force for injectables.
In our Generic business, sales declined by 1.3% compared to 2005 as a result of
continued price erosion and a limited contribution from new product launches.
However, we were successful in renewing for the fourth option year our sales
contract with the Department of Veterans Affairs, an agency of the government of
the United States, for the supply of Lisinopril.
Overall, we enhanced our manufacturing facilities across the Group during the
year, significantly increasing our manufacturing capacity in order to meet the
growing demand across our core businesses. Early in 2006, we opened a new
manufacturing plant in Algeria and we announced FDA approval of the facilities
of JPI for the manufacture of oral cephalosporin products for sale in the US
market. The construction of our new injectable cephalosporin plant in Portugal
was completed by the year end and continues to be on track to begin commercial
production in the first half of 2007.
Board appointments
In December 2006, Dr. Ronald Goode was appointed to the Board. Dr. Goode serves
as an independent non-executive Director and as a member of both the Audit and
Remuneration Committees. He has spent over 30 years in the international
pharmaceutical industry, including having held senior positions with Pfizer and
Searle, and is currently a director of Genitope Corporation, a NASDAQ-listed
company. Dr. Goode was formerly President and Chief Executive Officer of Unimed
Pharmaceuticals, Inc. and eXegenics Inc., and a director of several other
companies, including Hokuriku Seiyaku and Vitro Diagnostics.
Dividend
The Board has recommended a final dividend for the year to 31 December 2006 of
4.0 cents per share (approximately 2.1 pence per share), which makes a total of
7.0 cents per share for the year. The proposed final dividend will be paid on 18
June 2007 to shareholders on the register on 18 May 2007, subject to approval at
the Annual General Meeting.
Developments in 2007
In January 2007, we announced the acquisition of Ribosepharm GmbH, an oncology
company specialising in the marketing and distribution of injectable oncology
products both to private practices and hospitals in Germany. This acquisition
enhances our injectable product portfolio, develops our sales and marketing
capabilities and provides us with an excellent platform from which to enter the
large and fast-growing oncology market.
Our product portfolio and product pipeline have continued to develop in 2007. In
the first two months of the year we received a total of 14 regulatory approvals,
submitted 9 regulatory filings and launched 4 new products.
Looking forward
We expect both our Branded and Injectable businesses to deliver strong sales
growth in 2007, through a focus on key products, the launch of new products and
expansion into new markets. We expect the pricing environment in the United
States to remain competitive. However, we will work diligently to minimise the
effects of this pricing pressure on our Generic business by introducing new
products and retaining our strategic focus on reducing raw material costs.
The integration of JPI has been successfully completed and the integration of
Ribosepharm is proceeding in line with expectations. Further development of our
injectable product portfolio and our injectable sales, marketing and
manufacturing capabilities is essential to our growth strategy for this business
and we will continue to work to achieve this both through organic growth and
acquisitions. At the same time, we remain focused on our aim to consolidate our
strong position in the MENA region and we continue to evaluate acquisition
opportunities in our target markets - Egypt, Morocco and Turkey. We are
confident that the strength and diversity of our business will enable us to
continue our track record of delivering strong growth within the Group.
BUSINESS REVIEW
Branded Pharmaceuticals
The pharmaceutical market in the MENA region tends to be a branded market, in
which patented, generic and OTC pharmaceutical products are marketed under
specific brand names. Our Branded business manufactures branded generic
pharmaceutical products for sale across the MENA region and, increasingly,
Europe.
Revenue in the Branded business, our largest business segment, increased by
39.9% to $130.1 million, compared to $93.0 million in 2005. Excluding JPI, which
contributed $11.4 million, underlying sales growth was 27.6%, primarily due to
focused sales and marketing efforts and new product registrations.
Algeria, Saudi Arabia, Jordan and Sudan were the Branded business's largest
markets in 2006. In Algeria we recovered strongly from the disruptions caused by
the introduction of reference pricing in the beginning of the year, delivering
double-digit sales growth. Following the approval of our new manufacturing
facility in Algeria, new product registrations and local manufacturing approvals
have helped to drive growth in this market. During the year, we received 26
product approvals in Algeria, including four for new products and 20 local
manufacturing approvals. In 2006, our market share in Algeria increased to 3.9%,
compared to 3.3% in 2005 and we are now the sixth largest pharmaceutical
manufacturer and second largest generic pharmaceutical manufacturer by value in
the Algerian market.2 While we expect the reference pricing system introduced by
the Algerian Ministry of Labour and Social Security Affairs in early 2006 will
continue to impact prices in the Algerian market, we believe that the strength
of our current market position and our developing product portfolio will enable
us to mitigate further price reductions.
In Saudi Arabia, we delivered excellent growth as we continued to see the
benefits of the investment in sales and marketing that was made in 2005, when 35
sales and marketing representatives were added to the sales team. In 2006, we
increased our market share, which includes JPI, to 4.0%, compared to 3.8% in
2005, making us the fifth largest player in the Saudi Arabian market. (2) During
the year 3 new products were launched in Saudi Arabia.
---------------------
(2) Source: IMS Health
During the year we increased our shareholding in JPI, our associate in Saudi
Arabia, to 100% for a cash consideration of $21.0 million. Through this
acquisition we are benefiting from an enhanced product portfolio and faster
product delivery in the GCC region, improved registration times, and an increase
in the number of sales representatives covering the region. At the end of 2006,
JPI had a total of 31 products in 82 dosage strengths in its product portfolio,
including 13 products in 21 dosage strengths that are new to Hikma.
Growth in the Jordanian market was also strong in 2006 and well ahead of the
underlying market. As in Saudi Arabia, we benefited in the Jordanian market from
the investment in sales and marketing that was made in the second half of 2005,
when 16 sales representatives were added. We received 7 new product approvals
and launched 3 new products in the Jordanian market during the year and
increased our market share to 7.3%, compared to 6.8% in 2005, maintaining our
position as market leader. (3)
Sudan, the Branded business's fourth largest market, performed extremely well,
largely due to an increased product focus and better geographical coverage,
combined with a more stable operating environment. While market data is not
readily available for the Sudanese market, we believe that we now have a leading
position in this market.
We also achieved strong performances in some of our newer and smaller markets,
including Libya, UAE and South Africa, driven mainly by better brand recognition
and product launches.
Revenue from the Branded business's top-ten sellers represented 73.0% of Branded
revenue in 2006. Leading products included Amoclan, Oprazole, Penamox, Prograf
and Suprax. Sales from under-licensed products represented 34.1% of sales in
2006. During the year, 2 new licensing agreements were signed, bringing the
total number of products under-license in the Branded business to 25. (4)
Gross profit of the Branded business increased by 29.3% to $69.5 million,
compared to $53.7 million in 2005. The Branded Pharmaceuticals business's gross
margin decreased to 53.4%, compared to 57.8% in 2005. This change in gross
profit margin is attributed to an increase in overheads associated with the new
Algerian manufacturing facility that came on stream in early 2006, and an
increase in discounts granted in the Algerian market in relation to the new
reference pricing system.
The Branded business's operating profit (before associates) increased by 36.9%
in 2006, to $39.4 million. Through a strict focus on operating efficiencies,
operating margins in the Branded business remained stable at 30.3% in 2006,
compared to 30.9% in 2005, despite the inclusion of additional operating
expenses from JPI. As previously indicated, JPI will have a slightly dilutive
effect on Branded operating profit margins in 2007. We expect this will be most
apparent in the first half of the year, given the seasonality we traditionally
see in the Branded business.
In line with our strategic objectives for the Branded business, we launched a
total of 6 new products in 2006, 3 in Jordan and 3 in Saudi Arabia. The total
number of Branded sales and marketing staff at year end was 443, which includes
128 sales and marketing staff at JPI. Excluding JPI, the number of sales and
marketing staff increased slightly to 315, compared to 286 in 2005, as we
benefited from the investment in sales and marketing that was made in 2005.
------------------
(3) Source: IMS Health
(4) At the end of 2006, 18 of these products were sold in the Branded business.
A further two were launched in the beginning of 2007 an additional five are
pending launch.
Injectable Pharmaceuticals
Our Injectable business manufactures injectable generic pharmaceutical products
in powder, liquid and lyophilised forms for sale across the MENA region, Europe
and the United States. The Injectable business contributed 21.3% of total Group
revenue in 2006, compared to 18.8% in 2005.
Revenue in our Injectable business increased by 37.1% to $67.6 million, compared
to $49.3 million in 2005. The increase was due primarily to strong performances
in Europe and the MENA region, where sales grew as a result of our continued
focus on sales and marketing.
During the year, the Injectable business received 48 regulatory approvals,
including 28 in Europe, 32 in the MENA region and 3 in the United States. 12 of
these approvals were for new products, the rest were for new dosage strengths or
forms.
Revenues were strong in Europe, particularly in Germany, where sales were driven
by an increasingly strong product portfolio and our enlarged sales and marketing
presence. Demand for our lyophilized injectable products and a strong
performance in Portugal also boosted European Injectable sales, as did the sales
and distribution agreements signed with Hospira in the beginning of 2006. At the
end of December we had 14 sales and marketing representatives in Europe.
The Injectable business also performed well in the MENA region, especially in
Saudi Arabia and Sudan. This strong performance was driven by more focused sales
efforts, the continuous introduction of new products and formulations and the
development of newer markets including Lebanon and Libya. Strong demand for
tender business also boosted sales, especially in the second half of the year.
At the end of December we had a total of 58 sales and marketing representatives
in the MENA region.
In the United States, at the beginning of the year we established a specialised
injectable distribution company, Hikma Pharmaceuticals (USA), Inc.. Sales in
this part of the business grew modestly due to a lower than expected
contribution from new product sales as a result of delays in new product
approvals.
Across the Injectable business, 14 new products were launched during the year,
including 6 in Jordan, 3 in the United States and 5 in Europe.
Revenue from the Injectable business's top-ten sellers represented 68.7% of
Injectable revenue in 2006. Cephalosporins continue to be the segment's top
sellers.
Gross profit of the Injectable business increased by 53.9% to $28.3 million,
compared to $18.4 million in 2005. The Injectable business's gross margin
increased to 41.9%, compared to 37.4% in 2005. Injectable operating profit
increased by 57.4% to $13.4 million, compared to $8.5 million in 2005, despite
an increase in spending on sales and marketing in anticipation of a number of
new product launches. Injectable operating margins improved to 19.8% in 2006, up
from 17.2% in 2005. The increase in both gross and operating profit margin
reflects the increased scalability of the business as we achieved higher
utilisation rates.
During the year, we focused on developing our sales and marketing capabilities
across all geographies and ended the year with 58 sales and marketing
representatives in the MENA Region, and 14 in Europe, including 5 in Portugal
and 7 in Germany, and 5 in the United States.
Also in 2006, we completed the construction of our new cephalosporin plant in
Portugal, which is on track to begin production in the first half of 2007.
In January 2007, we acquired Ribosepharm GmbH, an oncology company specialising
in the marketing and distribution of injectable oncology products both to
private practices and hospitals in Germany, for cash consideration of $45.0
million. This acquisition provides us with an excellent platform from which to
enter the large and fast-growing oncology market. Ribosepharm currently has 11
sales representatives in the German market.
Generic Pharmaceuticals
With higher growth rates in Branded and Injectables, the Generic business
contributed 35.9 % of total Group revenue in 2006, compared to 43.9% in 2005.
Consistent with 2005, all Generic revenues were generated in the United States.
As anticipated, 2006 was a challenging year for our Generic business. Revenue
decreased by 1.3% to $113.7 million, compared to $115.2 million in 2005. The
change was primarily due to continued price erosion, which was only partially
offset by volume increases, and a limited contribution from new product
launches. During the year, 3 new products were launched.
Revenue from the Generic business's top-ten sellers represented 70.8% of Generic
revenue in 2006. Leading products included lisinopril, doxycycline and
methocarbamol.
In December 2006, we successfully renewed our sales contract with the Department
of Veterans Affairs, an agency of the government of the United States, for the
supply of Lisinopril. This renewal represented the exercise of the 4th Option
Year for the contract with a contract period between 21 December 2006 and 20
December 2007. The contract was renewed at a slight discount to last year's
renewal price. All other terms and conditions of the contract remain unchanged.
Lisinopril accounted for 34.6% of Generic revenue and 12.4% of Group revenue in
2006.
Gross profit of the Generic business decreased by 4.1% to $59.8 million,
compared to $62.3 million in 2005. Gross margin in the Generic business was
52.6%, compared to 54.1% in 2005. This reflects the price erosion experienced in
this market, as well as an increase in overheads as new facilities and machinery
came on line during the year. These factors were only partially offset by an
improvement in raw material costs.
Generic operating profit decreased by 7.1% to $36.0 million. Operating profit
margins in the Generic business decreased to 31.7% of revenue, compared to 33.6%
in 2005. The decrease in operating margin is attributed to price erosion and the
increase in overheads mentioned above, as operating expenses remained largely
unchanged.
Other businesses
Other businesses, which include primarily Arab Medical Containers, a
manufacturer of specialised plastic packaging, and International Pharmaceuticals
Research Centre (IPRC), which conducts bio-equivalency studies, had aggregate
revenue in 2006 of $5.7 million, or 1.8% of total Group revenue. Other
businesses delivered an operating loss of $1.2 million in 2006, compared to
$0.03 million in 2005, as a result of an increase in investment in research and
development.
Group performance
Revenue for the Group increased by 20.9% to $317.0 million, compared to $262.2
million in 2005. On an underlying basis, excluding JPI, revenue increased by
16.4%. The increase was primarily due to strong increases in revenue in both the
Branded and Injectable businesses.
In 2006, 41.0% of revenue was generated by our Branded business, 35.9% of
revenue was generated by our Generic business and 21.3% by our Injectable
business. Geographically, 49.7% of revenue was generated in the MENA region,
while 40.9% of revenue was generated in the United States and 9.3% in Europe.
The Group's gross profit increased by 16.7% to $158.5 million, compared to
$135.8 million in 2005. Group gross margins for 2006 were 50.0% of revenue,
compared to 51.8% in 2005. On a segmental basis, gross margins improved in the
Injectable business, but declined in the Branded business, due to an increase in
overheads related to the new Algerian plant and the impact of reference pricing
in Algeria, and in the Generic business due to continued price erosion.
Group operating expenses increased in 2006 by 23.8% to $84.2 million, compared
to $68.0 million for 2005, mainly due to higher sales and marketing expenses in
the Injectable business, an increase in corporate expenses related to being a
public company and the consolidation of JPI for the last four months of the
year.
Sales and marketing expenses increased by 27.9% to $35.0 million, due primarily
to an increase in investment in sales and marketing infrastructure in the
Injectable business and the consolidation of the sales and marketing expenses of
JPI. Sales and marketing expenses represented 11.0% of Group revenue in 2006,
compared to 10.4% in 2005.
The Group's general and administrative expenses increased by 34.1% to $30.3
million, compared to $22.6 million in 2005. As anticipated, the change can be
attributed to an increase in corporate expenses, which increased by $5.0 million
to $13.2 million as we continued to strengthen corporate functions to support
the demands of being a publicly listed company. General and administrative
expenses represented 9.6% of Group revenue in 2006, compared to 8.6% in 2005.
Investment in R&D for the Group increased by 10.8% to $18.3 million, compared to
$16.5 million in 2005. This increase can be attributed to ongoing investment in
the development of our product portfolio. Total investment in R&D represented
5.8% of Group revenue in 2006, compared to 6.3% in 2005.
Other net operating expenses, which consist mainly of provisions against slow
moving items partially offset by foreign exchange gains and management fees from
an associate, were $0.6 million, compared to $1.5 million in 2005.
The share of results of associates was $0.9 million in 2006, compared to $1.4
million in 2005. This change reflects JPI's status as an associate business for
only 8 months of 2006.
Operating profit for the Group increased by 8.7% to $75.2 million, compared to
$69.2 million in 2005. Group operating margin declined by 2.7 percentage points
to 23.7% in 2006, compared to 26.4% of revenue in 2005, primarily as a result of
increased overheads related to our new Algerian plant, the continued price
erosion in the Generic business and the increase in the Group's general and
administrative expenses.
Research & Development
In the year to 31 December 2006, Hikma submitted 88 regulatory filings,
including 32 ANDAs. These included filings for new products, which include
pharmaceutical compounds not yet launched by Hikma, existing compounds being
introduced into new regions and countries, and line extensions (the registration
of new dosage strengths or forms of existing products).
Filings in New product Pending Pending approvals
2006(5) filings in approvals as of new products as
2006 of 31 December of 31 December
2006 2006
---------- ---------- ---------- ----------
Generic
Pharmaceuticals
United States 20 17 31 23
---------- ---------- ---------- ----------
Branded
Pharmaceuticals
MENA* 28 14 17 9
Europe and ROW 3 1 11 2
---------- ---------- ---------- ----------
31 15 28 11
Injectable
Pharmaceuticals
United States 12 9 25 20
MENA* 15 9 18 9
Europe 10 4 15 8
---------- ---------- ---------- ----------
37 22 58 37
---------- ---------- ---------- ----------
88 54 117 71
========== ========== ========== ==========
* Includes only the first filing of a product or line extension in the MENA
region.
We estimate that the currently marketed equivalent products of the 71 new
products covered by the Group's pending approvals had sales of approximately
$23.7 billion in the year ended 31 December 2006 in the markets covered by our
pending approvals(6).
-----------------
(5) Products are defined as pharmaceutical compounds sold by the Group.
New products are defined as pharmaceutical compounds not yet launched by the
Group and existing compounds being introduced into a new segment or a new
region.
Line extensions are new forms or dosage strengths.
Filings include only filings for new products and the first filing of line
extensions in a segment or region.
Approvals are comprehensive and include approvals for new products and line
extensions and approvals in new countries.
Pending approvals include only applications that are pending for new products
and the first filing of a line extension in a segment or region.
(6) Source: IMS Health. This figure does not include the market potential of our
pending injectable approvals in the MENA region.
At 31 December 2006, we had a total of 105 new products under development, the
majority of which should receive several marketing authorisations, including
separate marketing authorisations in differing strengths and/or product forms
between 2007 and 2009.
FINANCIAL REVIEW
Finance income
The Group's financing income includes interest income and net foreign exchange
gains from non trading activities. Financing income increased by $3.7 million to
$5.3 million in 2006, compared to $1.6 million in 2005. The increase was due
primarily to interest earned on proceeds generated from the Group's IPO and
interest generated from cash deposits in the United States.
Finance costs
Financing costs decreased by $0.2 million to $5.0 million, compared to $5.2
million in 2005. While overall debt levels increased during the year, this is
due to the consolidation of JPI. On an underlying basis, excluding JPI, total
debt decreased by 14.2% to $46.5 million as of 31 December 2006.
Profit before tax
Profit before taxes and minority interest for the Group increased by $11.2
million, or 17.4%, to $75.6 million, compared to $64.4 million in 2005.
Tax
The Group had a tax expense of $19.6 million in 2006. The effective tax rate was
26.0%, a year on year decrease of 4.2 percentage points. The tax rate decrease
was due to a shift in the geographic mix towards lower tax countries,
particularly in the MENA region as well as to a change in the geographic mix of
the origin of production towards subsidiaries in lower tax countries.
Minority interest
Hikma's minority interest increased to $1.4 million in 2006, compared to $1.1
million in 2005.
Profit for the year
The Group's profit for the year attributable to equity holders of the parent
grew by 24.3% to $54.5 million for the year ended 31 December 2006, compared to
$43.9 million in 2005.
Earnings per share
Diluted earnings per share for the year to 31 December 2006 were 31.0 cents, up
9.5% from 28.3 cents in 2005.
Dividend
The Board has recommended a final dividend of 4.0 cents per share (approximately
2.1 pence). The proposed final dividend will be paid on 18 June 2007 to
shareholders on the register on 18 May 2007, subject to approval at the Annual
General Meeting.
Cash flow and capital expenditure
$35.1 million of generated cash flows were invested in working capital to
support sales growth, resulting in a net cash inflow from operating activities
of $35.2 million as of 31 December 2006, compared to $32.7 million in 2005.
Debtor days increased from 101 days in 2005 to 126 days in 2006, due to the
consolidation of JPI. Excluding JPI, debtor days increased slightly to 107 days.
This increase was mainly as a result of a temporary increase in receivables
during the fourth quarter of the year. Using the count back method to calculate
debtor days (i.e. counting back the year end receivable balance by respective
monthly sales), debtor days were stable at 102 days and 103 days as at 31
December 2005 and 31 December 2006, respectively.
Inventory days increased from 168 days to 194 days primarily due to a strategic
decision in the United States to enhance service levels by increasing
inventories and due to the consolidation of JPI. Without JPI, inventory days
increased to 183 days.
Net cash used for investing activities was $72.7 million in the year to 31
December 2006 compared to $16.4 million in the same period in 2006. The most
significant investing activity in 2006 was purchases of property, plant and
equipment amounting to $49.7 million, which relates primarily to the
construction of the new cephalosporin plant in Portugal, expansions in
production capacity in Jordan and the US, in addition to the completion of the
manufacturing facility in Algeria. During the year the Group also made regular
investments in upgrading and maintaining existing facilities in all other areas,
as well as setting up a new quality control laboratory and research and
development facility in Jordan.
The second significant component of investing activities during 2006 was the
$21.0 million paid for the acquisition of the 52.5% of JPI that we did not
already own.
Net cash used in financing activities in the twelve months to 31 December 2006
was $13.6 million, primarily representing a long term debt (including capital
leases) decrease of $8.9 million and dividends paid of $7.0 million.
Cash balance and net cash position
The Group's cash and cash equivalents decreased by $49.7 million in 2006 to
$86.2 million, primarily as a result of capital expenditures, the acquisition of
JPI, debt repayments and dividends, partially offset by normal operating
activities, which generated $35.2 million.
The Group's net cash position at 31 December 2006 was $25.0 million, compared to
net cash of $86.9 million at 31 December 2005. Net cash is calculated as the
total of investments in cash deposits, collateralised cash, and cash and cash
equivalents, less bank overdrafts and the current and long term portion of loans
and obligations under finance leases.
Future outlook
Group performance in 2007 is on track and we are pleased to be able to reiterate
the guidance we gave in January of this year and are updating this guidance to
reflect the acquisition of Ribosepharm.
Incorporating Ribosepharm, which will be consolidated from 1 January 2007, we
now expect to deliver Group sales growth in excess of 30%. Ribosepharm will also
impact positively on gross margin, which we now expect to be in line with 2006.
We expect Ribosepharm's sales and marketing expenses as a percentage of sales,
however, to be approximately 35% to 40% in 2007.
We will continue to invest in R&D at a rate of 5% to 6% of sales and we now
expect that our effective tax rate will improve slightly from the 26% we have
achieved in 2006.
We expect our results in 2007 will continue to reflect the seasonality of our
business, which will be further emphasised by the consolidation of JPI. In
addition, we continue to expect that JPI will have a slightly dilutive effect on
Branded operating margins in 2007.
Consolidation of our position in the MENA region and expansion of our Injectable
business remain key strategic objectives and we will continue to look for
opportunities to expand our operations both organically and through
acquisitions.
In 2007, the intangible assets (excluding goodwill) acquired in the JPI and
Ribosepharm transactions will be amortised, in accordance with the accounting
standard IFRS 3 'Business combinations'. As a result, we expect to incur an
annual amortisation charge of approximately $0.3 million for JPI, based on
associated intangible assets that we have valued at $4.9 million. We will
undergo a similar valuation exercise with respect to Ribosepharm's intangible
assets over the course of the year and expect to incur an associated annual
amortisation charge. Generally, we expect future amortisation charges will
increase consistent with the acquisitive nature of the Group.
Forward-looking statements
Certain statements in this announcement are forward-looking statements which
have been made by the Directors in good faith based on the information available
to them up to the time of their approval of this announcement. By their nature,
forward-looking statements involve a number of risks, uncertainties or
assumptions that could cause actual results or events to differ materially from
those expressed or implied by the forward-looking statements, and should be
treated with caution. These risks, uncertainties or assumptions could adversely
affect the outcome and financial effects of the plans and events described in
this announcement. Forward-looking statements contained in this announcement
regarding past trends or activities should not be taken as a representation that
such trends or activities will continue in the future. You should not place
undue reliance on forward-looking statements, which speak as only of the date of
this the approval of this announcement.
Except as required by law, the Company is under no obligation to update or keep
current the forward-looking statements contained in this announcement or to
correct any inaccuracies which may become apparent in such forward-looking
statements.
Consolidated income statement
for the year ended 31 December 2006
Notes 2006 2005
USD '000 USD '000
-------- --------
Continuing operations
Revenue 2 317,022 262,215
Cost of sales 2 (158,492) (126,424)
-------- --------
Gross profit 2 158,530 135,791
Sales and marketing costs (35,014) (27,367)
General and administrative expenses (30,328) (22,610)
Research and development costs (18,291) (16,507)
Other operating expenses (net) (588) (1,548)
-------- --------
Total operating expenses (84,221) (68,032)
Share of results of associates 938 1,449
-------- --------
Operating profit 75,247 69,208
Flotation costs - (1,426)
Finance income 5,258 1,562
Finance costs (4,958) (5,211)
Other income 49 276
-------- --------
Profit before tax 75,596 64,409
Tax 3 (19,639) (19,452)
-------- --------
Profit for the year 55,957 44,957
======== ========
Attributable to:
Minority interest 1,435 1,090
Equity holders of the parent 54,522 43,867
-------- --------
55,957 44,957
======== ========
Earnings per share (cents)
Basic 5 32.6 30.0
======== ========
Diluted 5 31.0 28.3
======== ========
Consolidated balance sheet
at 31 December 2006
Notes 2006 2005
USD '000 USD '000
-------- --------
Non-current assets
Intangible assets 23,940 7,735
Property, plant and equipment 156,845 91,209
Interest in associate - 7,552
Due from associate - 2,304
Deferred tax assets 5,719 1,506
Available for sale investments 776 1,439
Financial and other non-current assets 1,242 1,276
-------- --------
188,522 113,021
-------- --------
Current assets
Inventories 6 83,720 58,017
Income tax recoverable 500 1,320
Trade and other receivables 7 121,846 82,634
Collateralised cash 5,337 5,120
Cash and cash equivalents 86,227 135,959
Other current assets 2,204 1,891
-------- --------
299,834 284,941
-------- --------
Total assets 488,356 397,962
======== ========
Current liabilities
Bank overdrafts and loans 35,614 21,146
Obligations under finance leases 1,216 797
Trade and other payables 8 53,916 44,017
Income tax provision 8,535 5,965
Other provisions 2,577 1,233
Other current liabilities 4,868 3,542
-------- --------
106,726 76,700
-------- --------
Net current assets 193,108 208,241
-------- --------
Non-current liabilities
Long-term financial debts 25,339 30,791
Deferred income 356 416
Obligations under finance leases 4,441 1,411
Deferred tax liabilities 1,695 1,162
-------- --------
31,831 33,780
-------- --------
Total liabilities 138,557 110,480
======== ========
Net assets 349,799 287,482
======== ========
Consolidated balance sheet
at 31 December 2006
Notes 2006 2005
USD '000 USD '000
-------- --------
Equity
Share capital 9 29,712 29,457
Share premium 111,431 110,074
Reserves 203,924 144,350
-------- --------
Equity attributable to equity holders of the parent 345,067 283,881
Minority interest 4,732 3,601
-------- --------
Total equity 349,799 287,482
======== ========
Consolidated statement of changes in equity
for the year ended 31 December 2006
Merger Retained Other Total Share Share Total equity
reserve earnings reserves* reserves Capital premium attributable
to equity
shareholders of
the parent
-------- -------- -------- -------- -------- -------- --------
USD '000 USD '000 USD '000 USD '000 USD '000 USD '000 USD '000
Balance at
1 January
2005 33,920 82,140 1,348 117,408 25,269 (187) 142,490
Issue of
equity
shares - - - - 4,188 120,725 124,913
Cost of equity
settled employee
share scheme - 712 - 712 - - 712
Expenses of
issue of
equity shares - - - - - (10,810) (10,810)
Sale of
treasury
shares - - - - - 346 346
Deferred tax
arising on
share options - 960 - 960 - - 960
Dividends on
ordinary
shares - (17,800) - (17,800) - - (17,800)
Profit for
the year - 43,867 - 43,867 - - 43,867
Cumulative
effect of
change in fair
value of
available
for sale
investments - 980 - 980 - - 980
Cumulative
effect of
change in
fair value of
financial
derivatives - 164 - 164 - - 164
Currency
translation
loss - - (1,941) (1,941) - - (1,941)
------- ------- ------- ------- ------- ------- --------
Balance at
31 December
2005 and 1
January
2006 33,920 111,023 (593) 144,350 29,457 110,074 283,881
Issue of
equity shares - - - - 255 1,357 1,612
Cost of equity
settled employee
share scheme - 879 - 879 - - 879
Deferred
tax arising on
share options - 2,352 - 2,352 - - 2,352
Dividends
on ordinary
shares - (6,509) - (6,509) - - (6,509)
Profit for
the
year - 54,522 - 54,522 - - 54,522
Cumulative effect
of change in fair
value of available
for sale
investments - (663) - (663) - - (663)
Cumulative
effect of
change in
fair value of
financial
derivatives - 27 - 27 - - 27
Revaluation
reserve - - 4,807 4,807 - - 4,807
Currency
translation
gain - - 4,159 4,159 - - 4,159
------- ------- ------- ------- ------- ------- --------
Balance at
31 December
2006 33,920 161,631 8,373 203,924 29,712 111,431 345,067
======= ======= ======= ======= ======= ======= ========
* Other reserves comprise the revaluation reserve (see note 10) and the
cumulative translation reserve.
Notes 2006 2005
USD '000 USD '000
------- -------
Net cash from operating activities 11 35,250 32,713
Investing activities
Purchases of property, plant and equipment (49,725) (23,423)
Proceeds from disposal of property, plant and
equipment 453 873
Purchase of intangible assets (2,715) (562)
Investment in financial and other assets 34 (78)
Investment in available for sale securities - (35)
Reduction of cash deposits - 7,692
Acquisition of subsidiary undertakings 10 (21,633) (825)
Cash acquired on acquisition of subsidiary 860 4
------- -------
Net cash used in investing activities (72,726) (16,354)
------- -------
Financing activities
Proceeds from the sale of treasury shares - 346
Increase in collateralised cash (217) (5,120)
Increase in long-term financial debts 495 25,583
Repayment of long-term financial debts (12,881) (20,895)
Increase/(decrease) in short-term borrowings 1,244 (15,659)
Increase/(decrease) in obligations under finance
leases 3,449 (3,109)
Dividends paid (6,989) (17,800)
Dividends paid to minority shareholders (294) (130)
Proceeds from issue of new shares 1,612 124,913
Costs of issue of new shares - (10,810)
------- -------
Net cash (used in)/from financing activities (13,581) 77,319
------- -------
Net (decrease)/increase in cash and cash equivalents (51,057) 93,678
Cash and cash equivalents at beginning of year 135,959 41,415
Foreign exchange translation 1,325 866
------- -------
Cash and cash equivalents at end of year 86,227 135,959
======= =======
Notes to the consolidated financial information
1. Basis of preparation
Basis of accounting
The basis of preparation of this preliminary announcement is set out below.
The financial information in this announcement, which was approved by the Board
of Directors on 21 March 2007, does not constitute the Company's statutory
accounts for the years ended 31 December 2006 or 2005 but is derived from these
accounts.
Statutory accounts for 2005 have been delivered to the Register of Companies and
those for 2006 will be delivered following the Company's Annual General Meeting.
The auditors have reported on these accounts; their reports were unqualified and
did not contain statements under S237 (2) or (3) of the Companies Act 1985.
The Group's principal accouting policies are unchanged compared with the year
ended 31 December 2005.The preliminary announcement has been prepared on a
consistent basis with the full consolidated financial statements which are
prepared in accordance with International Financial Reporting Standards (IFRS)
issued by the International Accounting Standards Board. The financial statements
have also been prepared in accordance with IFRSs adopted for use in the European
Union and therefore comply with Article 4 of the EU IAS Regulation. The
financial statements have been prepared under the historical cost convention,
except for the revaluation to market of certain financial assets and
liabilities.
Notes to the consolidated financial information
2. Business and geographical segments
For management purposes, the Group is currently organised into three operating
divisions - Generic, Branded and Injectables. These divisions are the basis on
which the Group reports its primary segment information.
Segment information about these businesses is presented below.
Year ended
31 December 2006 Corporate and Group
Generic Branded Injectables other
USD '000 USD '000 USD '000 USD '000 USD '000
-------- -------- -------- -------- --------
Revenue 113,674 130,114 67,570 5,664 317,022
Cost of sales (53,911) (60,642) (39,225) (4,714) (158,492)
-------- -------- -------- -------- --------
Gross profit 59,763 69,472 28,345 950 158,530
-------- -------- -------- -------- --------
Result
Segment result 36,011 39,379 13,360 (1,200) 87,550
======== ======== ======== ========
Unallocated
corporate
expenses - - - - (13,241)
Share of
results of
associates - 938 - - 938
======== ======== ======== ======== --------
Operating
profit 75,247
Finance income 5,258
Finance costs (4,958)
Other income 49
--------
Profit before
tax 75,596
Tax (19,639)
--------
Profit for the
year 55,957
========
Attributable to:
Minority
interest 1,435
Equity holders
of the parent 54,522
--------
55,957
========
Notes to the consolidated financial information
2. Business and geographical segments (continued)
Year ended
31 December 2005 Corporate and
Generic Branded Injectables other Group
USD '000 USD '000 USD '000 USD '000 USD '000
-------- -------- -------- -------- --------
Revenue 115,208 93,012 49,303 4,692 262,215
Cost of sales (52,861) (39,297) (30,883) (3,383) (126,424)
-------- -------- -------- -------- --------
Gross profit 62,347 53,715 18,420 1,309 135,791
-------- -------- -------- -------- --------
Result
Segment result 38,765 28,764 8,486 (27) 75,988
======== ======== ======== ========
Unallocated
corporate
expenses - - - - (8,229)
Share of
results of
associates - 1,449 - - 1,449
======== ======== ======== ======== --------
Operating
profit 69,208
Flotation costs (1,426)
Finance income 1,562
Finance costs (5,211)
Other income 276
--------
Profit before
tax 64,409
Tax (19,452)
--------
Profit for the
year 44,957
========
Attributable to:
Minority
interest 1,090
Equity holders
of the parent 43,867
--------
44,957
========
Notes to the consolidated financial information
2. Business and geographical segments (continued)
The following table provides an analysis of the Group's sales by geographical
market, irrespective of the origin of the goods/services:
Sales revenue by
geographical market
for the years ended
31 December
----------------------------------
2006 2005
USD '000 USD '000
------- -------
United States 129,778 130,454
Europe and Rest of the World 29,543 20,478
Middle East and North Africa 157,701 111,283
------- -------
317,022 262,215
======= =======
3. Tax
For the years ended 31 December
2006 2005
USD '000 USD '000
------ -------
Current tax:
UK current tax 26,982 110
Double tax relief (26,840) -
Foreign tax 23,093 19,596
Prior year adjustments (500) -
Deferred tax (3,096) (254)
------- -------
19,639 19,452
======= =======
Notes to the consolidated financial information
4. Dividends
2006 2005
USD '000 USD '000
-------- --------
Amounts recognised as distributions to equity holders in
the period:
Final dividend for the year ended 31 December 2005 of
0.89 cents (2004: 5.0 cents) per share 1,489 7,120
Interim dividend for the year ended 31 December 2006 of
3.0 cents (2005: 7.5* cents) per share 5,020 10,680
-------- --------
6,509 17,800
======== ========
Proposed final dividend for the year ended 31 December
2006 of 4.0 cents per share (2005: 0.89 cents per share) 6,727 1,500
======== ========
* The dividends declared in 2005 include those dividends declared prior to the
IPO.
Notes to the consolidated financial information
5. Earnings per share
The calculation of the basic and diluted earnings per share is based on the
following data:
2006 2005
USD '000 USD '000
-------- --------
Earnings for the purposes
of basic and diluted
earnings per share being
net profit attributable to
equity holders of the
parent 54,522 43,867
======== ========
Number Number
-------- --------
Number of shares '000 '000
Weighted average number of
ordinary shares for the
purposes of basic earnings
per share 167,279 146,454
Effect of dilutive potential ordinary shares:
Share options 8,638 8,402
-------- --------
Weighted average number of
ordinary shares for the
purposes of diluted
earnings per share 175,917 154,856
======== ========
2006 2005
Earnings per Earnings per
share Cents share Cent
-------- --------
Basic 32.6 30.0
-------- --------
Diluted 31.0 28.3
-------- --------
6. Inventories
As at 31 December
2006 2005
USD '000 USD '000
-------- --------
Finished goods 21,684 14,868
Work-in-progress 18,489 13,150
Raw and packing materials 36,109 24,247
Goods in transit 7,438 5,752
-------- --------
83,720 58,017
======== ========
Notes to the consolidated financial information
7. Trade and other receivables
As at 31 December
2006 2005
USD '000 USD '000
-------- --------
Trade receivables 109,266 72,609
Other prepayments 6,148 5,389
Value added tax recoverable 5,701 3,889
Interest receivable 427 217
Employee advances 304 68
Other receivables - 462
-------- --------
121,846 82,634
======== ========
8. Trade and other payables
As at 31 December
2006 2005
USD '000 USD '000
-------- --------
Trade payables 32,331 26,738
Accrued expenses 15,000 11,705
Employees' provident fund 2,106 2,301
VAT and sales tax payables 2,281 1,425
Dividends payable 361 841
Social security withholdings 653 416
Income tax withholdings 382 378
Other payables 802 213
-------- --------
53,916 44,017
======== ========
Notes to the consolidated financial information
9. Share capital
Authorised: 2006 2005
USD '000 USD '000
-------- --------
500,000,000 ordinary shares of 10p each 88,700 88,700
49,998 non - voting, redeemable preference shares of £1
each - 90
======== ========
The Group redeemed the preference shares at par on 9 February 2006.
Issued and fully paid -
included in shareholders'
equity:
2006 2005
----------------- ---------------
Number '000 USD '000 Number '000 USD '000
--------- ------- --------- -------
At 1 January 166,798 29,457 142,400 25,269
Issued during the
year 1,366 255 24,398 4,188
--------- ------- --------- -------
At 31 December 168,164 29,712 166,798 29,457
========= ======= ========= =======
Notes to the consolidated financial information
10. Acquisition of subsidiary
On 11 September 2006, the Group acquired the remaining 52.5 per cent of the
issued share capital of JPI located in Saudi Arabia for cash consideration of
USD 21,000,000. The JPI operations consist of manufacturing products for the
Branded Generic segment which largely sells to customers in the GCC area.
The net assets acquired in the transaction and the goodwill arising are set out
below:
Book value Fair value Fair value
adjustments
--------- ---------- ---------
USD '000 USD '000 USD '000
Net assets acquired
Product related
intangibles - 3,256 3,256
Customer relationships - 4,946 4,946
Property, plant and
equipment 18,248 4,029 22,277
Inventory 8,209 (74) 8,135
Other current assets 2,258 - 2,258
Accounts receivable, net 20,760 (342) 20,418
Cash and cash equivalents 860 - 860
Trade accounts payable (5,147) - (5,147)
Income tax provision (96) - (96)
Bank overdrafts and loans (13,223) - (13,223)
Provision for end of
service indemnity (982) - (982)
Other current liabilities (3,345) - (3,345)
Long-term financial debts (6,934) - (6,934)
Due to sister companies (3,200) - (3,200)
Deferred tax liability - (1,695) (1,695)
--------- ---------- ---------
Net assets acquired
(100%) 17,408 10,120 27,528
--------- ---------- ---------
Net assets acquired
(52.5%) 9,139 5,313 14,452
--------- ---------- ---------
Goodwill 6,727
Total consideration 21,179
=========
Satisfied by :
Cash 21,000
Directly attributable
costs 179
---------
21,179
=========
Cash consideration 21,000
Cash and cash
equivalents acquired (860)
---------
Net cash outflow arising
on acquisition 20,140
=========
Notes to the consolidated financial information
10. Acquisition of subsidiary - continued
Directly attributable acquisition costs include legal and accounting costs
incurred in the preparation of the acquisition contracts and in performing due
diligence activities.
The Group placed significant emphasis on the value of property, plant and
equipment in making the decision to acquire JPI. The property, plant and
equipment of JPI complement the Group's Branded business.
The revenue and net profit of JPI from the date of acquisition that are included
in the Group's income statement for the period amounted to USD 11,737,000 and
1,918,000 respectively.
If the acquisition of JPI had been completed on the first day of the financial
year, Group revenues for the year would have been USD 338,948,000 and the
Group's profit attributable to equity holders of the parent would have been USD
55,828,000.
In accordance with IFRS 3 'Business Combinations' the company has consolidated
100% of JPI at fair value, and the fair value adjustment of USD 4,807,000
arising on consolidation that relates to the previously held 47.5% share of JPI
has been reflected as a revaluation reserve in equity. This reserve will be
transferred to retained earnings to offset the amortisation charge arising on
the total tangible and intangible assets over their useful economic lives.
Notes to the consolidated financial information
11. Net cash from operating activities
2006 2005
USD '000 USD '000
-------- -------
Profit before tax and minority interest 75,596 64,409
Adjustments for:
Depreciation, amortisation and
impairment of:
Property, plant and equipment 12,468 8,909
Intangible assets 1,329 1,416
Results from associated companies (938) (1,449)
Losses on disposal of property, plant and equipment 59 440
Movement on provisions 362 152
Deferred income (59) (174)
Cumulative effect of change in fair value of 27 164
derivatives
Share option charge 879 713
Finance income (5,258) (1,562)
Interest and bank charges 4,958 5,211
-------- -------
Cash flow before working capital 89,423 78,229
Change in trade and other receivables (17,059) (20,544)
Change in due from associate / related party (896) (691)
Change in other current assets (290) 219
Change in inventories (17,565) (13,306)
Change in trade and other payables 610 14,297
Change in other current liabilities 138 (4,029)
-------- -------
Cash generated by operations 54,361 54,175
Income tax paid (19,397) (17,800)
Finance income 5,258 1,562
Interest paid (4,972) (5,224)
-------- -------
Net cash generated from operating activities 35,250 32,713
======== =======
Notes to the consolidated financial information
12. Subsequent events
In January 2007, the Group announced the acquisition of Ribosepharm GmbH for
consideration of USD 45 million. The book value of tangible assets acquired was
USD 0.6 million. The Group is currently in the process of determining the fair
value adjustments and hence the goodwill and intangibles arising on the
acquisition. Due to the timing of this transaction, it has been impractical to
calculate and disclose the amounts of goodwill and intangible assets arising.
On 9 February 2007, the Group completed the acquisition of the remaining share
capital of 51% Hikma Pharma Co, a distribution business in Tunisia for USD
3,800. At this stage it is not practical to determine the goodwill arising on
this acquistion.
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