Hikma Preliminary Results
Hikma Pharmaceuticals Plc
29 March 2006
Hikma Pharmaceuticals PLC
Preliminary results announcement
for the year ended 31 December 2005
Hikma Pharmaceuticals PLC, 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 2005.
Revenue up 23.5% to $262.2 million
Gross profit up 25.2% to $135.8 million
R&D costs up 70.7% to $16.5 million
Operating profit up 10.3% to $69.2 million
Profit before tax up 9.1% to $64.4 million
Profit attributable to shareholders up 17.1% to $43.9 million
Diluted earnings per share up 14.1% to 28.3 cents
• Achieved revenue growth for the Group of 23.5% with particularly strong
performance in the Branded and Injectable businesses
• Maintained gross margins for the Group at 51.8%
• Increased investment in R&D by 70.7% to 6.3% of revenue
• Delivered 17.1% growth in profit attributable to shareholders
• Listed on London Stock Exchange with a market capitalisation at year end
of £675 million ($1.2 billion)
• Expanded into the lyophilised segment of the injectables market
• Received FDA approval of the manufacturing facilities of our associate
in Saudi Arabia
• Launched 10 new products(1), received 98 regulatory approvals and
submitted 73 regulatory filings during the year
(1) New pharmaceutical compounds that are being launched for the first time by
the Group or, for the first time, within another business segment
Commenting on the results, Samih Darwazah, Chairman and Chief Executive of
Hikma, said:
'I am pleased to report that 2005 was an extremely successful year for Hikma
Pharmaceuticals PLC. We have achieved a strong set of financial results driven
by new product launches, better product targeting and enhanced sales and
marketing capabilities, combined with a continued focus on API sourcing,
manufacturing and operational efficiencies. Our performance in 2005 reinforces
our track record of delivering growth and demonstrates the underlying strength
of our diverse business model.'
Enquiries:
Hikma Pharmaceuticals PLC
Bassam Kanaan, Chief Financial Officer On the day Tel: 07776 477 050
Susan Ringdal, Investor Relations Director Thereafter Tel: 020 7479 4893
Brunswick Group
Jon Coles / Wendel Verbeek /
Justine McIlroy / Alexandra Tweed Tel: 020 7404 5959
Hikma Pharmaceuticals PLC's presentation to analysts and investors will be
webcast live at 09:30 on 29 March 2006 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
I am pleased to report that 2005 was an extremely successful year for Hikma
Pharmaceuticals PLC. We have achieved a strong set of financial results driven
by new product launches, better product targeting and enhanced sales and
marketing capabilities, combined with a continued focus on API sourcing,
manufacturing and operational efficiencies. Our performance in 2005 reinforces
our track record of delivering growth and demonstrates the underlying strength
of our diverse business model.
On 1 November 2005 we successfully completed our initial public offering on the
London Stock Exchange and on 19 December 2005 we joined the FTSE 250. Through
the offer we raised gross proceeds of $124 million (£70.0 million) to be used to
repay debt and fund capital investment projects across our core businesses. As
of 31 December 2005, our market capitalisation was $1.2 billion (£675 million).
Through our listing we have enhanced our international profile, gained financial
flexibility to grow our business both organically and through acquisition, and
enabled global investors to support our development.
Financial results
The Group performed well across all businesses in 2005, achieving revenue of
$262.2 million, up 23.5% from 2004. Gross margin for the Group remained stable
at 51.8%. Operating profit grew by 10.3% to $69.2 million, while operating
margins decreased to 26.4%, compared to 29.5% in 2004, primarily as a result of
increased investment in R&D and sales and marketing. The Group's profit for the
year increased by 17.1% to $43.9 million and diluted earnings per share grew by
14.1% to 28.3 cents.
Business highlights
We ended 2005 with a total of 140 products in our portfolio in 302 dosage
strengths and forms, including the 10 products launched during the year and 25
under-licence products.(2) During 2005 we were granted 98 regulatory approvals.
In addition, we submitted a total of 73 regulatory filings, including 37 new
product applications.(3) As of 31 December 2005, we had a total of 88 pending
approvals and 90 products under development across our three main business
segments - Generic, Branded and Injectable Pharmaceuticals.
In our Branded and Injectable Pharmaceuticals businesses, we put considerable
effort into developing our sales and marketing capabilities, especially in the
MENA Region. We achieved market share gains in Saudi Arabia and maintained our
market leading position in Jordan. We also expanded into the technically
challenging lyophilised segment of the injectables market with the acquisition
of the Italian manufacturing business, IBPP, in March 2005. In December 2005,
our Generic Pharmaceuticals business successfully renewed its sales contract
with the Department of Veterans Affairs, an agency of the government of the
United States, for the supply of Lisinopril.
(2) Launches include only new pharmacuetical compunds that are being launched
for the first time by the Group or, for the first time within another business
segment
(3) Filings include filings for new products, which include pharmaceutical
compounds not yet launched by the Group and existing compounds being introduced
into new regions and countries, and line extensions
Board appointments
In anticipation of our IPO, three non-executive Directors were appointed to the
Board in October. In addition, Ali Al-Husry joined the Board as a Non-Executive
Director, having served as a director of Hikma Pharma Limited and other Group
companies since 1991. Ali is Chairman and CEO of Export & Finance Bank in
Jordan, as well as being a director of a number of other organisations.
Sir David Rowe-Ham joined the Board as Senior Independent Non-Executive Director
and took up the position of Chairman of the Nomination Committee. A Chartered
Accountant, Sir David is Chairman of Olayan Europe Ltd., BNP Paribas South Asia
Investment Co Ltd and Coral Products PLC.
Michael Ashton joined the Board as a Non-Executive Director and took up the
position of Chairman of the Remuneration Committee. Michael has been the chief
executive of a number of pharmaceutical companies and has over 32 years of
experience in the pharmaceutical industry.
Breffni Byrne also joined the Board as a Non-Executive Director, taking up the
position of Chairman of the Audit Committee. Also a Chartered Accountant,
Breffni is Chairman of NCB Stockbrokers and director of Irish Life and Permanent
plc, Coillte Teoranta (the Irish state forestry company), Adsteam Europe Limited
and other companies.
Dividend
The Board has recommended a pro rata final dividend for the period from
flotation to 31 December 2005 of 0.89 cents per share (approximately 0.5 pence
per share) equivalent to approximately 5.34 cents on a full year basis. The
proposed final dividend will be paid on 30 May 2006 to shareholders on the
register on 28 April 2006, subject to approval at the Annual General Meeting.
Developments in 2006
Early in 2006, we announced FDA approval of the manufacturing facilities of JPI,
our associate company in Saudi Arabia, for the manufacture of oral cephalosporin
products for sale in the US market. The construction of our new cephalosporin
plant in Portugal is well underway and on track to begin production in the first
half of 2007. The construction of our new penicillin plant in Jordan and the
expansion of our lyophilised injectable plant in Italy are scheduled for
completion in 2007. All three projects, as well as the approval of the JPI
facility, will significantly increase our manufacturing capacity and allow us to
meet the growing demand across our core businesses.
In 2006, we are planning to expand the penetration of our injectable products
across the United States, Europe and the MENA Region, through new product
launches and greater investment in sales and marketing, including recent senior
sales and marketing appointments. Our sales in Europe will be further enhanced
by agreements signed in the beginning of 2006 with Hospira, Inc., a global
specialty pharmaceutical and medication delivery company for the supply and
distribution of injectable products in European markets.
In early 2006, the Algerian Ministry of Labour and Social Security Affairs
announced changes to its reimbursement system, including the introduction of
reference pricing for a number of reimbursable products. This new legislation is
expected to impact current pricing of some, but not all, of our products sold in
Algeria. We expect to be able to minimise the effect of these price declines by
introducing new products and by increasing the sales volume, through greater
promotion of those Hikma products that are on the reference price list but that
have potential for sales growth.
Outlook
Our listing on the London Stock Exchange marks the beginning of an exciting new
phase in Hikma's development. In 2006, we will continue to improve the breadth
and quality of our product range and delivery of operational efficiencies with
continued investment in research and development, sales and marketing and human
resources.
Prospects for the Group's overall business performance are positive. We expect
to continue our trend of strong revenue growth, especially in our Branded and
Injectable businesses, through a focus on existing products, the launch of new
products and expansion into new markets. This will be driven by the strength of
our sales and marketing teams. 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.
We are confident that the strength and diversity or our business will enable us
to continue to deliver organic growth at the Group level, and we will continue
to look for new opportunities to grow through acquisition.
Samih Darwazah
Chairman and Chief Executive Officer
Business and financial review
Year ended 31 December
Hikma's key performance indicators 2005 2004 Change
______________________________________________________________________________
Revenue growth 23.5% 14.1% +9.5%
Gross margin 51.8% 51.1% +0.7%
Operating margin 26.4% 29.5% -3.1%
R&D costs as a percentage of revenue 6.3% 4.6% +1.7%
Profit attributable to shareholders ($ million) 43.9 37.5 +17.1%
Group performance
Revenue for the Group increased by 23.5% to $262.2 million, compared to $212.4
million in the prior year period. The increase was primarily due to strong
increases in revenue in both the Injectable and Branded Pharmaceuticals
businesses, as well as a solid performance from our Generic Pharmaceuticals
business.
In 2005, 43.9% of revenue was generated by our Generic Pharmaceuticals business,
35.5% of revenue was generated by our Branded Pharmaceuticals business and 18.8%
by our Injectables business. 49.8% of revenue was generated in the United
States, while 42.4% of revenue was generated in the MENA Region and 7.8% in
Europe.
The Group's cost of sales increased by 21.6% to $126.4 million, compared to
$103.9 million for the prior year period. Cost of sales represented 48.2% of
Group revenue, compared to 48.9% for the prior year period. The Group's gross
profit increased by 25.2% to $135.8 million, compared to $108.4 million in the
prior year period. Group gross margins for 2005 were 51.8% of revenue, compared
to 51.1% in the prior year period. On a segmental basis, gross margins improved
in the Branded and Injectable Pharmaceuticals businesses, and remained stable in
the Generic Pharmaceuticals business despite margin pressure in the second half
of the year.
Group operating expenses grew in 2005 by 48.9% to $70.0 million, compared to
$47.1 million for the prior year period. Sales and marketing expenses increased
by 38.7% to $27.4 million, due primarily to a significant increase in sales and
marketing headcount in the MENA region for both the Branded and Injectable
Pharmaceuticals businesses. Sales and marketing expenses represented 10.4% of
Group revenue in 2005, compared to 9.3% in the prior year period.
The Group's general and administrative expenses increased by 49.8% to $22.6
million, compared to $15.1 million in the prior year period. The change can be
attributed to an increase in corporate expenses, which increased by $1.7 million
to $8.2 million as we strengthened corporate functions in preparation for our
public listing. In addition, we saw an increase in general and administrative
expenses in our Generic Pharmaceuticals business, especially with respect to
consulting and IT costs related to the implementation of SAP. The increase also
reflects the consolidation of general and administrative expenses of IBPP in
Italy, the subsidiary acquired during the first half of 2005. General and
administrative expenses represented 8.6% of Group revenue in 2005, compared to
7.1% in the prior year period.
Investment in R&D for the Group increased by 70.7% to $16.5 million, compared to
$9.7 million in the prior year period. This increase can be attributed primarily
to the Generic Pharmaceuticals business, where we saw an increase in the number
of ANDA filings and associated bio-equivalency costs and the hiring of new
scientists and technicians for the R&D centre in Jordan. Total investment in R&D
represented 6.3% of Group revenue in 2005, compared to 4.6% in the prior year
period.
Other operating expenses increased by $1.0 million to $3.6 million, compared to
$2.6 million in the prior year period, primarily as a result of the cost of
setting up the new manufacturing facilities in Algeria that commenced operations
early in 2006.
Other operating income increased by $1.4 million to $2.0 million, compared to
$0.6 million in the prior year period, consisting mainly of management fees from
JPI.
Share of results of associates, now included in operating profit as they are
considered to be core to Group's activities, were $1.4 million in 2005, compared
to $0.7 million in the prior year period.
Operating profit for the Group increased by 10.3% to $69.2 million, compared to
$62.7 million in the prior year period. Group operating margin declined 3.1% to
26.4% in 2005, compared to 29.5% of revenue in the prior year period.
Research & Development
In the year to 31 December 2005, Hikma submitted 73 regulatory filings,
including 19 ANDAs. These included filings for new products, which include
pharmaceutical compounds not yet launched by the Company and 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 2005 New product filings in 2005 Pending approvals as Pending approvals of new
of 31 December 2005 products as of 31 December 2005
Generic
Pharmaceuticals
United States 14 10 21 13
Branded
Pharmaceuticals
MENA Region 16 5 8 2
Europe 4 1 9 1
_______ ________ _________ _______
20 6 17 3
Injectable
Pharmaceuticals
United States 5 5 16 13
MENA Region 23 11 23 11
Europe 11 5 11 5
_______ ________ _________ _______
39 21 50 29
============= =========== ============ =============
73 37 88 45
We estimate that the currently marketed equivalent products of the 45 new
products covered by the Group's pending approvals had sales of approximately
$9.0 billion in the year ended 31 December 2005 in the markets covered by the
pending approvals.
At 31 December 2005, we had a total of 90 products under development, the
majority of which should receive several marketing authorisations, including
separate marketing authorisations in differing strengths and/or product forms
between 2006 and 2009.
Generic Pharmaceuticals
Generic Pharmaceuticals remains our largest business in terms of revenue,
contributing 43.9 % of total Group revenue in 2005, compared to 50.0% in the
prior year period. As in 2004, all Generic Pharmaceutical revenues were
generated in the United States.
Revenue in our Generic Pharmaceuticals business increased by 8.5% to $115.2
million, compared to $106.2 million in the prior year period. The change was
primarily due to an increase in sales volumes offset by price declines. During
the year, 2 new products were launched.
Revenue from the Generic Pharmaceuticals business top-ten sellers represented
68.6% of Generic Pharmaceutical revenue in 2005. Leading products included
Lisinopril, Folic acid and Lithium carbonate (SR).
In December 2005 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 3rd Option
Year for the contract with a contract period between 21 December 2005 and 20
December 2006. All other terms and conditions of the contract, including
pricing, remain unchanged. Lisinopril accounted for 33.4% of Generic
Pharmaceuticals revenue and 14.7% of Group revenue in 2005.
Cost of sales of the Generic Pharmaceuticals business increased by 8.4% to $52.9
million, compared to $48.8 million in the prior year period. Cost of sales of
the Generic Pharmaceuticals business represented 45.9% of the Generic business's
total revenue in 2005, unchanged from the prior year period.
Gross profit of the Generic Pharmaceuticals business increased by 8.3% to $62.3
million, compared to $57.5 million in the prior year period. The Generic
Pharmaceuticals business's gross margin remained stable at 54.1%, despite a
significant reduction in gross margin in the second half of the year resulting
from increased pricing pressure.
Generic Pharmaceuticals operating profit decreased by 5.6% to $38.8 million.
Operating margins in the Generic Pharmaceuticals business decreased to 33.6% of
revenue, compared to 38.6% in the prior year period. The decrease in operating
margin can be attributed to an increase in investment in R&D as a result of
increased spending on bioequivalence studies in both the United States and
Jordan as well as an increase in general and administrative expenses related to
personnel, consulting and IT-related activities.
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 Pharmaceuticals business manufactures branded
generic pharmaceutical products for sale across the MENA Region and,
increasingly, Europe.
Revenue in our Branded Pharmaceuticals business increased by 25.7% to $93.0
million, compared to $74.0 million in the prior year period. The increase was
due primarily to an increased focus on our strongest products and to the
strengthening of our sales and marketing efforts across the region.
In line with our strategic objectives for the Branded Pharmaceuticals business,
we launched 5 new products(4) in 2005. We also restructured our sales and
marketing capabilities across the MENA Region, creating separate sales teams for
Branded and Injectable products. We ended the year with 280 Branded sales and
marketing representatives across the MENA Region.
(4) New pharmaceutical compounds that are being launched for the first time
within the business segment
Algeria, Saudi Arabia and Jordan remained the Branded Pharmaceuticals business's
three key markets in 2005. In 2005 our market share in Algeria increased
slightly to 3.2%, compared to 3.0% in the prior year period, maintaining our
position as the seventh largest pharmaceutical manufacturer and second largest
generic pharmaceutical manufacturer by value in the Algerian market. During the
year we increased the number of medical reps and launched a number of new
products into the market. The completion of our manufacturing facilities in
Algeria at the end of 2005, and the subsequent approval of the facilities by the
Algerian Ministry of Health in early 2006, will enable us to produce products
locally for the Algerian market. Our new local presence should also help to
expedite the registration of new products for this market.
In early 2006, the Algerian Ministry of Labour and Social Security Affairs
announced changes to its reimbursement system, including the introduction of
reference pricing for a number of reimbursable products. This new legislation is
expected to impact current pricing of some, but not all, of our products sold in
Algeria. We expect to be able to minimize the effect of these price declines by
introducing new products and by increasing the sales volume, through greater
promotion of those Hikma products that are on the reference price list but that
have potential for sales growth.
A strong performance in Saudi Arabia was driven, in part, by the launch of new
products and to a restructuring of the sales force, which included management
changes and increased specialization by the medical reps. In Saudi Arabia, our
combined market share in value terms, including that of our associate business
JPI, increased to 3.5% in 2005, compared to 3.1% in the prior year period,
making us the sixth largest player in the Saudi Arabian market.
In Jordan we gave particular focus to our key products and better product
targeting. As in Algeria and Saudi Arabia, we also launched new products in the
Jordanian market. We maintained our position as market leader for the full year,
with a market share of 6.4% in value terms.
In line with our strategy of expanding our geographic reach in the MENA Region,
we established our own distribution company in Lebanon in 2005, which will
enable us to register more products and give us more control of our sales and
distribution operations in this growing market.
Revenue from the Branded Pharmaceuticals business top-ten sellers represented
80.2% of Branded Pharmaceutical revenue in 2005. Leading products included
Amoclan, Prograf and Suprax.
Cost of sales of the Branded Pharmaceuticals business increased by 14.5% to
$39.3 million, compared to $34.3 million in the prior year period. Cost of sales
of the Branded Pharmaceuticals business represented 42.3% of the business's
total revenue, compared to 46.4% in the prior year period. Gross profit of the
Branded Pharmaceuticals business increased by 35.3% to $53.7 million, compared
to $39.7 million in the prior year period. The Branded Pharmaceuticals
business's gross margin increased to 57.8%, compared to 53.6% in the prior year
period. This improvement in gross profit margin reflects efficiency improvements
in our production planning process and increased economies of scale as well as
an improvement in product and geographical sales mix.
Branded Pharmaceuticals' operating profit increased by 28.2% in 2005, to $28.8
million. Operating margins in the Branded Pharmaceuticals business were 30.9% in
2005, up from 30.3% in 2004.
Injectable Pharmaceuticals
Our Injectable Pharmaceuticals business manufactures injectable generic
pharmaceutical products in powder, liquid and lyophilised forms for sale across
the MENA Region, the United States and Europe. Injectable Pharmaceuticals is our
fastest growing and most geographically diverse business, contributing 18.8% of
total Group revenue in 2005, compared to 13.6% in the prior year period.
Revenue in our Injectable Pharmaceuticals business increased by 70.8% to $49.3
million, compared to $28.9 million in the prior year period. The increase was
due primarily to strong performances in all key geographic regions, driven by
enhanced sales and marketing efforts and new product launches.
Revenues were particularly strong in the United States, where we launched a new
form of cefazoline in the first quarter of 2005 and secured sales contracts with
three new customers. In the MENA Region, a strong performance was driven by the
development of a dedicated sales force of 51 sales representatives and the
introduction of new products. In Europe, the acquisition of IBPP in Italy and
our newly established operations in Germany, which included four sales and
marketing employees at year-end, helped to boost Injectable Pharmaceuticals
sales.
Revenue from the Injectable Pharmaceuticals business's top-ten sellers
represented 69.0% of Injectable Pharmaceuticals revenue in 2005, compared to
86.9% in the prior year period. Cephalosporins continue to be the segment's top
sellers, while leading liquid injectables included Diclofenac sodium,
Ciprofloxacin and Atracurium. We also successfully launched our Injectable
portfolio's first pre-filled syringe product, HIBOR, an in-licensed low
molecular weight heparin for the MENA region.
Cost of sales of the Injectable Pharmaceuticals business increased by 61.8% to
$30.9 million, compared to $19.1 million in the prior year period. Cost of sales
of the Injectable Pharmaceuticals business represented 62.6% of the business's
total revenue compared to 66.3% in the prior year period. Gross profit of the
Injectable Pharmaceuticals business increased by 89.7% to $18.4 million,
compared to $9.7 million in the prior year period. The Injectable
Pharmaceuticals business's gross margin increased to 37.4%, compared to 33.7% in
the prior year period. The increase in gross profit margin reflects the
increased scalability of the business as we achieved higher utilisation rates
and as fixed manufacturing expenses decreased as a percentage of sales.
Injectable Pharmaceuticals' operating profit increased by 107.3% to $8.5
million, compared to $4.1 million in the prior year period, despite increased
spending on R&D and sales and marketing. Injectable operating margins improved
to 17.2% in 2005, up from 14.1% in the prior year period. The increased
scalability of the business also explains this improvement operating margin.
During the year, we focused on developing our sales and marketing capabilities
across all geographies and ended the year with 51 sales reps in the MENA Region,
and 9 in Europe - 5 in Portugal and 4 in Germany. Since the beginning of 2006,
we have added four additional sales and marketing employees in Europe - two
sales reps in Germany, a sales director for the Benelux and a sales rep in
Italy. We have also enhanced our injectable presence in the US through the
appointment of a General Manager and a VP Sales & Marketing.
Also in 2005 construction began on our new Cephalosporin plant in Portugal,
which will host three new production lines, warehouses and laboratory
facilities. The plant is on track to begin production in the first half of 2007.
Other businesses
Other businesses, which include primarily Arab Medical Containers, a
manufacturer of plastic specialised packaging, and International Pharmaceuticals
Research Centre (IPRC), which conducts bio-equivalency studies, had aggregate
revenue in 2005 of $4.7 million, or 1.8% of total Group revenue.
Financial performance
Flotation costs
Flotation costs related to our initial public offering recognised in the income
statement were $1.4 million in 2005, compared to $0.4 million in the prior year
period. The direct costs of the issue of new shares of $10.8 million have been
charged to the share premium account.
Finance income
The Group's financing income includes interest income and net foreign exchange
gains from non trading activities. Financing income increased by $1.3 million to
$1.6 million in 2005, compared to $0.3 million the prior year period. 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 increased by $1.4 million to $5.2 million, compared to $3.8
million in the prior year period. This increase relates primarily to borrowings
for working capital purposes in the Branded and Injectable Pharmaceuticals'
segments.
Profit before tax
Profit before taxes and minority interest for the Group increased by $5.4
million, or 9.1%, from $59.0 million in 2004 to $64.4 million in 2005.
Tax
The Group had tax expenses of $19.5 million in 2005. The effective tax rate was
30.2%, a year on year decrease of 5.1 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 to product sourcing from subsidiaries in lower tax
countries.
Minority interest
Hikma's minority interest increased from $0.7 million in 2004 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 17.1% to $43.9 million for the year ended 31 December 2005.
Earnings per share
Diluted earnings per share for the year to 31 December 2005 were 28.3 cents, up
14.1% from 24.8 cents in 2004.
Dividend
The Board has recommended a pro rata final dividend for the period from float to
31 December 2005 of 0.89 cents per share (approximately 0.5 pence) equivalent to
approximately 5.34 cents on a full year basis. The proposed final dividend will
be paid on 30 May 2006 to shareholders on the register on 28 April 2006, subject
to approval at the Annual General Meeting.
Cash flow and investment
Net cash inflow from operating activities was $32.7 million in the year to 31
December 2005 compared to $32.8 million in the year to 31 December 2004. Net
working capital increased by $24.1 million, primarily due to the relatively
higher portion of sales generated in the MENA Region, where collection periods
are generally higher, as well as to higher receivables at West-ward. Inventory
days increased from 156 days to 168 days primarily due to higher levels of raw
materials.
Net cash used for investing activities was $16.4 million in the year to 31
December 2005 compared to $25.4 million in the same period in 2004. The most
significant investing activities in 2005 were purchases of property, plant and
equipment amounting to $23.4 million, offset by the realisation of investments
in cash deposits in the amount of $7.7 million.
Total cash paid for the purchase of businesses was $0.8 million. This
expenditure was mainly on the acquisition of IBPP in Italy.
Net cash from financing activities in the twelve months to 31 December 2005 was
$77.4 million compared to net cash used in financing activities of $5.4 million
in the year to 31 December 2004. Significant financing activities in 2005
included $124.9 million generated from the issuance of new shares.
Capital expenditure
Capital expenditures were driven primarily by investment in our new facilities
in Algeria, the new cephalosporin plant in Portugal and the construction of a
new quality control laboratory and a research and development facility in
Jordan. During the year the Group also made regular investments in upgrading and
maintaining existing facilities.
Balance sheet
The Group's cash balance increased by $94.5 million in 2005 to $135.9 million,
as a direct result of the Group's initial public offering of new shares as well
as normal operating activities, which generated $124.9 million and $32.7
million, respectively. This was partially offset by capital expenditures, debt
repayments and dividends.
The Group's net cash position at 31 December 2005 was $86.9 million, compared to
a net debt position of $13.9 million at 31 December 2004. Net cash/debt 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.
Share price
The Group's share price closed at 404.75 pence on 30 December 2005, an increase
of 39.6% since listing on the London Stock Exchange on 1 November 2005 at an
offer price of 290 pence. The Group's total shareholder return for this period
was 39.6%, compared to 14.4% for the FTSE 250 (30.2% for the full year) and 4.5%
for the FTSE 350 pharmaceuticals sector (32.4% for the full year), with the
stock outperforming both indices over the period. During this period the share's
closing price ranged from a low of 277 pence in November 2005 to a high of
404.75 pence in December 2005.
Future outlook
We believe the progress the Group has made in 2005 leaves us well-positioned to
continue our track record of strong growth. We have made significant investment
in both R&D and sales and marketing, and through our capital investment
programme, we have expanded our manufacturing facilities. With 88 pending
approvals and 90 products under development, our pipeline is stronger than ever.
We expect both our Branded and Injectable Pharmaceutical businesses to deliver
strong sales growth in 2006, through a focus on key products, the launch of new
products and expansion into new markets. Gross margins in our Branded business
are expected to remain stable, and we see scope for improvement in gross margins
in our Injectable business, through higher utilisation rates and lower fixed
manufacturing expenses as a percentage of sales.
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.
We are confident that the strength and diversity of our business will enable us
to continue to deliver strong organic growth at the Group level. Furthermore,
consolidation of our position in the MENA Region remains a key strategic
objective and we will continue to look for opportunities to expand our
operations through acquisitions.
Forward looking statements
Certain statements in this announcement are forward looking statements. 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. These risks,
uncertainties or assumptions could adversely affect the outcome and financial
effects of the plans and events described herein. 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 only as of the date 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
Year ended 31 December 2005
Notes 2005 2004
USD 000's USD 000's
(Restated see note 1)
__________ ______________ ________________________
Continuing operations
Revenue 2 262,215 212,377
Cost of sales 2 (126,424) (103,937)
______________ ________________________
Gross profit 2 135,791 108,440
Sales and marketing costs (27,367) (19,728)
General and administrative
expenses (22,610) (15,098)
Research and development
costs (16,507) (9,672)
Other operating expenses (3,556) (2,552)
Other operating income 2,008 602
Share of results of
associates 1,449 732
______________ ________________________
Operating profit 69,208 62,724
Flotation costs 3 (1,426) (425)
Finance income 1,562 326
Finance costs (5,211) (3,825)
Other income 276 224
______________ ________________________
Profit before tax 64,409 59,024
Tax 4 (19,452) (20,835)
______________ ________________________
Profit for the year 44,957 38,189
============== ========================
Attributable to:
Minority interest 1,090 731
Equity holders of the 43,867 37,458
parent
______________ ________________________
44,957 38,189
============== ========================
Earnings per share (cents)
Basic 30.0 26.3
============== ========================
Diluted 28.3 24.8
============== ========================
During the year the Group carried out a corporate restructuring including the
introduction of a new holding company. The income statement has been prepared
using merger accounting and is presented on a pro forma basis as if the new
holding company had been in existence throughout both the current and prior
periods. Further information is given in note 1.
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND 2005 2004
EXPENSES USD 000's USD 000's
Year ended 31 December 2005
___________ _________
Gains on revaluation of available-for-sale
investments taken to equity 980 92
Gains on revaluation of fair value
derivatives taken to equity 164 168
Exchange (loss) / gain on translation of
foreign operations (1,941) 1,158
___________ _________
Net income recognised directly in equity (797) 1,418
Profit for the year 44,957 38,189
___________ _________
Total recognised income and expense for the
year 44,160 39,607
=========== =========
Attributable to:
Equity holders of the parent 43,070 38,876
Minority interests 1,090 731
___________ _________
44,160 39,607
=========== =========
CONSOLIDATED BALANCE SHEET
Year ended 31 December 2005 2005 2004
USD 000's USD 000's
___________ __________
Non-current assets
Intangible assets 7,735 5,033
Property, plant and equipment 91,209 71,471
Interest in associate 7,552 6,103
Due from associate 2,304 1,613
Deferred tax assets 1,506 171
Available for sale investments 1,439 425
Financial and other non-current assets 1,276 1,189
___________ __________
113,021 86,005
___________ __________
Current assets
Inventories 58,017 44,365
Income tax recoverable 1,320 1,908
Trade and other receivables 87,466 63,732
Investment in cash deposits - 7,692
Collateralised cash 5,120 -
Cash and cash equivalents 135,959 41,415
Other current assets 1,891 1,364
___________ __________
289,773 160,476
___________ __________
Total assets 402,794 246,481
=========== ==========
Current liabilities
Bank overdrafts and loans 21,146 35,108
Obligations under finance leases 797 1,165
Trade and other payables 48,849 29,812
Income tax provision 5,965 4,646
Other provisions 1,233 829
Other current liabilities 3,542 1,672
___________ __________
81,532 73,232
___________ __________
Net current assets 208,241 87,244
___________ __________
Non-current liabilities
Long-term financial debts 30,791 24,291
Deferred income 416 591
Obligations under finance leases 1,411 2,448
Deferred tax liabilities 1,162 744
___________ __________
33,780 28,074
___________ __________
Total liabilities 115,312 101,306
=========== ==========
Net assets 287,482 145,175
=========== ==========
Notes 2005 2004
USD 000's USD 000's
___________ ___________
Equity
Share capital 5 29,457 25,269
Share premium 6 110,074 -
Treasury shares - (187)
Reserves 7 144,350 117,408
___________ ___________
Equity attributable to equity holders
of the parent 283,881 142,490
Minority interest 3,601 2,685
___________ ___________
Total equity 287,482 145,175
=========== ============
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December 2005 Notes 2005 2004
USD 000's USD 000's
________ ___________ ___________
Net cash from operating activities 8 32,713 32,842
Investing activities
Purchases of property, plant and
equipment (23,423) (18,043)
Proceeds from disposal of property,
plant and equipment 873 66
Purchase of intangible assets (562) (3,287)
Investment in financial and other
assets (78) (643)
Disposal of financial and other assets - 500
Investment in available for sale
securities (35) (71)
Reduction of /(Investment in) cash
deposits 7,692 (4,111)
Acquisition of subsidiary (825) (690)
Cash acquired on acquisition of
subsidiary 4 880
___________ ___________
Net cash used in investing activities (16,354) (25,399)
___________ ___________
Financing activities
Proceeds from the sale of treasury
shares 346 4,841
Purchase of treasury shares - (4,835)
Increase in collateralised cash (5,120) -
Increase in long-term financial debts 25,583 -
Repayment of long-term financial debts (20,895) (9,670)
(Repayments) / increase in short-term
borrowings (15,659) 6,990
Net (repayments)/ increase in
obligations under finance leases (3,109) 1,011
Dividends paid (17,800) (3,766)
Proceeds from issue of new shares 124,913 -
Costs of issue of new shares (10,810) -
___________ ___________
Net cash from/(used in) financing
activities 77,449 (5,429)
___________ ___________
Net increase in cash and cash
equivalents 93,808 2,014
Cash and cash equivalents at beginning
of year 41,415 39,301
Effect of foreign exchange rate
changes 736 100
___________ ___________
Cash and cash equivalents at end of
year 135,959 41,415
============ ===========
Notes to the preliminary announcement for the year ended 31 December 2005
1. Basis of preparation
I. Basis of accounting
Hikma Pharmaceuticals PLC's consolidated financial statements are prepared in
accordance with International Financial Reporting Standards (IFRSs) 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.
The Group's previously published financial statements were also prepared in
accordance with International Financial Reporting Standards. These International
Financial Reporting Standards have been subject to amendment and interpretation
by the International Accounting Standards Board and the financial statements
presented for the years ended 31 December, 2004 and 31 December 2005 have been
prepared in accordance with those revised standards. Unless stated otherwise
these policies are in accordance with the revised standards that have been
applied throughout the year and prior years presented in this financial
statements.
The currency used in the preparation of the accompanying consolidated financial
statements is the US Dollar as the majority of the Company's business is
conducted in US Dollars (USD).
II. Corporate restructuring
During the year the Group carried out a corporate restructuring including the
introduction of a new holding company, Hikma Pharma PLC, incorporated in Great
Britain as a public limited company on 8 September 2005. Hikma Pharma PLC
changed its name to Hikma Pharmaceuticals PLC on 19 September 2005 and on 31
October 2005 Hikma Pharmaceuticals PLC acquired the issued share capital of
Hikma Pharma Limited, the former holding company, for the issue of shares to
shareholders on the basis of 4 shares for every 1 share held in Hikma Pharma
Limited. Prior to 31 October 2005, Hikma Pharmaceuticals PLC had not commenced
trading or made any profits or losses. On 4 November 2005 the shares of Hikma
Pharmaceuticals PLC were listed on the London Stock Exchange.
The corporate restructuring was accounted for using merger accounting
principles. The results of the Company and its subsidiaries have been presented
on a pro forma basis for the years ended 31 December 2005 and 31 December 2004
as the directors believe this information is more meaningful to readers than
information for the period from 8 September 2005 to 31 December 2005. The
directors believe that this presentation is necessary to present a true and fair
view of the results of the Company and its subsidiaries for the year.
III. Restatement of prior year income statement comparatives
The following restatements had no effect on the profit for the 2004 financial
year or on the net assets of the Group at 31 December 2004.
For the year ended 31 December 2005, the Groups' share of results of associates
has been included within operating profit as the directors consider these
activities to be operational activities and the 2004 comparative has been
restated. Accordingly, management fees receivable from associates of USD
1,016,000 (2004: USD 333,000) are reflected in other operating expenses. In 2004
the management fees were included in other income.
Flotation costs totalling USD 425,000 incurred in 2004 were classified as
general and administrative expenses. Following flotation, the 2004 comparatives
have been restated to reflect these costs as non operational.
The prior year comparatives for revenue, sales and marketing costs, and general
and administrative expenses have been restated to reflect a change in accounting
policy for Medicaid rebates and associated administrative charges paid to the
wholesale customers of the Generics division. The restatement has resulted in
revenue, sales and marketing costs, and general and administrative expenses
being decreased by USD 1,771,000, USD 1,334,000 and USD 437,000 respectively.
This restatement had no effect on operating profits for the year.
The financial information in the preliminary announcement does not constitute
the Group's statutory financial statements for 2005 but has been extracted from
the Group's 2005 financial statements and, as such, does not contain all
information required to be disclosed in the financial statements prepared in
accordance with International Financial Reporting Standards. Statutory financial
statements for 2005 will be filed following the Annual General Meeting. The
auditors have reported on these financial statements; their report was
unqualified and did not contain a statement under section 237 (2) or (3) of the
Companies Act 1985.
2. Business and geographical segments
For management purposes, the Group is organised into three operating divisions -
Generics, 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.
2005 USD Generics Branded Injectable Corporate and others Group
(000)'s
________ ______ _________ ____________ _______
Revenue 115,208 93,012 49,303 4,692 262,215
Cost of (52,861) (39,297) (30,883) (3,383) (126,424)
sales
________ ________ ___________ _____________________ _________
Gross 62,347 53,715 18,420 1,309 135,791
profit ======== ======== =========== ===================== =========
Result
Segment 38,765 28,764 8,486 (27) 75,988
result
======== ======== =========== ===================== =========
Unallocated
corporate
expenses (8,229)
Share of
results of
associates 1,449 1,449
======= _________
Operating
profit 69,208
Flotation
costs (1,426)
Finance 1,562
income
Finance (5,211)
costs
Other 276
income
________
Profit
before 64,409
tax
Tax (19,452)
Minority
interest (1,090)
________
Profit for
the
year
attributable
to equity 43,867
shareholders =========
2. Business and geographical segments (continued)
2004 USD (000)'s Generics Branded Injectable Corporate and Group
others (Restated)
Revenue 106,225 74,013 28,859 3,280 212,377
Cost of sales (48,773) (34,312) (19,140) (1,712) (103,937)
_________ ________ ________ ________ ____________
Gross profit 57,452 39,701 9,719 1,568 108,440
========= ======== ========= ======== ============
Result
Segment result 41,043 22,441 4,056 986 68,526
Unallocated
corporate
expenses (6,534)
Share of
results of
associates 732 732
========= __________
Operating
profit 62,724
Flotation
costs (425)
Finance income 326
Finance costs (3,825)
Other income 224
___________
Profit before
tax 59,024
Tax (20,835)
Minority
interest (731)
__________
Profit for the
year
attributable
to equity
shareholders 37,458
===========
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
-------------
2005 2004
USD 000's USD 000's
_________ ___________
United States 130,454 113,101
Europe 20,445 12,490
Middle East and North Africa 111,283 85,826
Rest of the world 33 960
_________ ___________
262,215 212,377
========= ===========
3. Flotation costs
The total costs of flotation were USD 12,661,000, of which costs incurred in
issuing shares amounting to USD 10,810,000 have been charged against the share
premium account. The remaining amount of USD 1,851,000 incurred as a result of
the listing exercise, but which was not eligible to be set against the share
premium, has been reflected in flotation costs within the income statement, of
which USD 1,426,000 and USD 425,000 was recognised in the years ended 31
December 2005 and 2004, respectively.
4. Tax
For the years ended 31 December
2005 2004
USD 000's USD 000s
____________ ___________
Current tax:
UK current tax 110 -
Foreign tax 19,596 20,896
Deferred tax (254) (61)
_____________ _____________
19,452 20,835
============= ==============
5. Share capital
2005 2004
USD 000's USD 000's
___________ ___________
Authorised:
500,000,000 ordinary shares of 10p each 88,700 88,700
49,998 non - voting, redeemable preference
shares of 1 each 90 90
=========== ============
Issued and fully paid - included in shareholders'
equity
166,798,407 ordinary shares of 10p each 29,457 25,269
=========== ============
Issued and fully paid - included in liabilities
49,998 non - voting, redeemable preference
shares of 1 each 90 -
=========== ============
The Company was incorporated on 8 September 2005 with an authorised share
capital of £50,000 divided into 2 ordinary shares of £1 each and 49,998
non-voting, redeemable preference shares of £1 each.
The two ordinary shares of £1 each were transferred on 8 September 2005 as
subscriber shares at a price of £1 each to the two executive directors, and on
15 September 2005 all the preference shares were allotted to the executive
directors. The Company redeemed the preference shares at par on 9 February 2006.
At 31 December 2005 the preference shares were recorded as a financial liability
within other current liabilities.
On 31 October 2005, the two ordinary shares of £1 each were subdivided into 10
ordinary shares of 10p each and the authorised ordinary share capital of the
Company was increased to £50 million by the creation of an additional
499,999,980 ordinary shares of 10p each.
On 31 October 2005, the Company acquired the entire issued share capital of
Hikma Pharma Limited pursuant to a share exchange offer, following which it
became the holding company of the Group. Under the terms of the share exchange,
shareholders in Hikma Pharma Limited received four ordinary shares in the
Company for every one share held in Hikma Pharma Limited. Total shares issued
and fully paid were 142,400,020 ordinary shares of 10p each.
On 1 November 2005, and as a result of a placing, 24,137,931 ordinary shares of
10p each were issued at a price of 290p per Ordinary Share.
On 30 November 2005, the Company allotted 260,456 ordinary shares at a price of
290p per ordinary share pursuant to the exercise of an over-allotment option.
6. Share premium
Share premium
USD 000's
_____________
Balance at 1 January 2004, 31 December 2004 and 1 January 2005 -
Premium arising on issue of equity shares 120,725
Expenses of issue of equity shares 10,810)
Treasury shares 159
_____________
Balance at 31 December 2005 110,074
=============
7. Reserves
Cumulative
USD 000's Merger Retained translation Total
reserve earnings reserve reserve
_______ ________ ___________ _______
At 1 January 2004 33,920 48,043 190 82,153
Cost of equity settled employee share scheme - 145 - 145
Dividends on ordinary shares - (3,766) - (3,766)
Profit for the year - 37,458 - 37,458
Cumulative effect of change in fair value of
available for sale investments - 92 - 92
Cumulative effect of change in fair value of
financial derivatives - 168 - 168
Currency translation gain - - 1,158 1,158
_______ ________ ___________ _______
At 31 December 2004 33,920 82,140 1,348 117,408
Cost of equity settled employee share scheme - 712 - 712
Deferred tax arising on stock options - 960 - 960
Dividends on ordinary shares - (17,800) - (17,800)
Profit for the year - 43,867 - 43,867
Cumulative effect of change in fair value of
available for sale investments - 980 - 980
Cumulative effect of change in fair value of
financial derivatives - 164 - 164
Currency translation gain - - (1,941) (1,941)
_______ ________ ___________ _______
At 31 December 2005 33,920 111,023 (593) 144,350
======= ======== =========== =======
8. Net cash from operating activities
2005 2004
USD 000's USD 000's
_________ _________
Profit before tax and minority interest 64,409 59,024
Adjustments for:
Depreciation, amortisation and impairment of:
Property, plant and equipment 8,909 6,680
Intangible assets 1,416 -
Financial assets - 92
Results from associated companies 1,449) (732)
Losses on disposal of property, plant and
equipment 440 390
Movement on provisions 404 372
Deferred income (174) (54)
Cumulative effect of change in fair value of
derivatives 164 168
Stock options granted 713 145
Deferred tax (252) 41
Interest and bank charges 5,211 3,826
_________ _________
Cash flow before working capital 79,791 69,952
Change in trade and other receivables (22,311) (10,426)
Change in due from associate (691) (1,080)
Change in other current assets (369) (1,700)
Income tax recoverable 588 (707)
Change in inventories (13,306) 4,563
Change in trade and other payables 16,064 1,955
Change in other current liabilities (4,029) (6,532)
_________ _________
Cash generated by operations 55,737 56,025
Income tax paid (17,800) (19,458)
Interest paid (5,224) (3,725)
_________ _________
Net cash generated from operating activities 32,713 32,842
========= =========
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