Interim Results 2006
Hikma Pharmaceuticals Plc
13 September 2006
Hikma reports Interim Results for the six months to 30 June 2006
• Revenue up 17.6% to $154.9 million
• Profit attributable to shareholders up 19.9% to $30.1 million
• On track for a record year of regulatory approvals
• Positive outlook maintained for the full-year
LONDON, 13 September 2006 - Hikma Pharmaceuticals PLC ('Hikma')(LSE: HIK) (DIFX:
HIK) today announces its interim results for the six months to 20 June 2006.
Hikma is a multinational pharmaceutical group focused on developing,
manufacturing and marketing a broad range of generic and in-licensed
pharmaceutical products. Hikma operates in the United States, Europe and across
the MENA region.
H1 2006 financial highlights
Revenue up 17.6% to $154.9 million
Gross profit up 9.9% to $80.0 million
R&D costs up 25.8% to $9.0 million
Operating profit up 3.3% to $42.2 million
Profit before tax up 9.5% to $42.4 million
Profit attributable to shareholders up 19.9% to $30.1 million
Diluted earnings per share* up 2.9% to 17.2 cents
Dividends per share* 3.0 cents
Operational highlights
• Strong revenue growth achieved in the Branded and Injectables businesses
• On track for a record year of regulatory approvals, with 82 approvals in
the first half, compared with 98 for the full year 2005
• Capacity substantially increased across the Group to meet growing demand
• Construction of the new cephalosporin plant in Portugal and R&D labs in
Jordan nearing completion
• In September, completed the acquisition of the 52.5% of JPI not
previously owned by Hikma consolidating our position in the fast-growing
Saudi and GCC markets
Commenting on the results, Samih Darwazah, Chairman and Chief Executive of
Hikma, said:
'Hikma has had a very successful start to 2006. Our Branded and Injectables
businesses have performed particularly well and we have already secured almost
as many regulatory approvals in the first half of 2006 as in the whole of 2005.
We are on track to continue to deliver further revenue growth in the second
half, driven by improving conditions in the Algerian market, exceptional demand
for our Injectables products and new product launches in our Generic business in
the United States.'
Enquiries:
Hikma Pharmaceuticals PLC
Samih Darwazah, Chief Executive Officer On the day Tel: 020 7404 5959
Bassam Kanaan, Chief Financial Officer On the day Tel: 020 7404 5959
Susan Ringdal, Investor Relations Director Thereafter Tel: 020 7399 2770
Brunswick Group
Jon Coles / Justine McIlroy / Alex Tweed Tel: 020 7404 5959
Hikma Pharmaceuticals PLC's presentation to analysts and investors will take
place at 9.30am GMT on 13 September at the offices of Brunswick, 16 Lincoln's
Inn Fields, London WC2A 3ED and will also be available on webcast at
www.hikma.com and www.cantos.com and via conference call. This may be accessed
by dialling: +44 (0)20 7138 0837, and quoting 'Hikma conference call.' The
webcast will be available as an archive to replay via the website from 12:00
noon and a replay of the conference call will be available for 10 days by
dialling: +44 (0)20 7806 1970, with the access code: 1573547#.
Overview
We are pleased to report that Hikma has continued to build on its successful
track record in the first half of 2006. The Group has achieved a solid set of
interim results, benefiting from the strength and diversity of our business
model. We have had excellent performances in both the Branded and Injectable
businesses, and this has more than compensated for the challenging market
conditions in our Generic business in the United States, where price competition
was intense.
Financial results
The Group performed well in the first half of the year, achieving revenue of
$154.9 million, up 17.6% from the first half of 2005. Gross margin for the Group
was 51.6%, down from 55.2% in the first half of 2005, but higher than the gross
margin of 48.3% achieved in the second half of 2005 and broadly in line with the
gross margin of 51.8% achieved for the 2005 full year.
Operating profit grew by 3.3% to $42.2 million. Operating margin increased to
27.2% compared to the operating margin of 26.4% achieved for the 2005 full year,
but was lower than the operating margin of 31.0% achieved in the first half of
2005. This decrease in operating margin is due primarily to increased investment
in production capacity, in sales and marketing, and in R&D, together with higher
corporate costs attributable largely to our new status as a publicly quoted
company.
Profit before tax increased by 9.5% to $42.4 million and profit attributable to
shareholders for the period increased by 19.9% to $30.1 million. Diluted
earnings per share increased by 3.0% to 17.2 cents per share, reflecting the
increase in the weighted average number of shares following our initial public
offering in November 2005.
Business highlights
Our Branded Pharmaceuticals business delivered revenue growth of 25.1% in the
first half of the year. This was driven by strong sales in Jordan and Saudi
Arabia, two of our largest markets in the MENA region, and by sales in
developing and new markets, such as the UAE, Sudan and Yemen. These results were
achieved despite disruption in the Algerian market caused by the implementation
of a new reference pricing regime. We expect our business in Algeria to recover
through the introduction of new products, many of which will be produced locally
in our new manufacturing facilities.
In the Generic Pharmaceuticals business, where revenues declined by 4.2%, we
were able partially to offset continued price erosion with strong volume growth.
We expect an improvement in the second half, driven both by new product sales as
we launch a number of products approved in the first half of the year and
additional regulatory approvals over the remainder of the year.
In the first half of the year, we delivered strong revenue growth of 52.9% in
our Injectables business by launching new products and leveraging the investment
made in sales and marketing in 2005 in each of our three core markets - MENA,
the US and Europe. In the United States we set up a specialised distribution
company, Hikma Pharmaceuticals (USA) Inc., with a dedicated sales force for
injectables. In Europe, our distribution agreements with Hospira are already
enhancing our product offering and facilitating the penetration of our products
in the European market.
Research & Development
The Group's product portfolio continues to grow. During the first half of the
year, we added 13 new products to the Group portfolio, which now covers 153
products in 336 dosage strengths and forms. We manufacture and/or sell 26 of
these products under-license from the originator and anticipate signing new
licensing agreements in the second half of this year, primarily in our Branded
and Injectable businesses.
During the first half of 2006 we received 82 regulatory approvals(1), including
7 ANDA approvals for the Generic business and 2 tentative ANDA approvals for the
Injectable business. This compares very favourably with the 98 regulatory
approvals received for the whole of 2005. These approvals will help us to
deliver further growth in the second half of the year.
To ensure the continuous development of our product pipeline, we submitted a
total of 37 regulatory filings(2), which included 29 new product applications in
the first half of the year. 13 of these filings were ANDAs in the US. As of 30
June 2006, we had a total of 96 pending approvals and 74 products under
development across our three main businesses - Generic, Branded and Injectable
Pharmaceuticals.
Dividend
The Board has declared an interim dividend of 3.0 cents per share (approximately
1.6 pence per share). The interim dividend will be paid on 27 October 2006 to
shareholders on the register on 29 September 2006 with an ex-dividend date of 27
September 2006.
Recent developments
In September we completed the purchase of the remaining 52.5% of JPI not
previously held by the Group, thus strengthening our position in the Saudi
Arabian market and improving our access to the fast growing GCC region. Now that
we have full control of JPI, we are also better positioned to utilise JPI's FDA
approved manufacturing facilities to supply the US market.
The new cephalosporin plant in Portugal is nearing completion and is on track to
begin production in early 2007. In Jordan, we are also nearing completion of a
new quality control laboratory and research and development facility. In Italy,
the expansion of the lyophilisation plant is underway.
Outlook
Since the end of the first half of 2006, the Group has continued to perform
well. We are on track to deliver further revenue growth in the second half of
the year, driven by continued growth across the MENA region, the continuation of
significant growth in the Injectables business and new product launches in the
Generic business in the United States. Overall, we remain confident in the
Group's ability to deliver solid financial results for the full year.
Business and financial review
Branded Pharmaceuticals
The pharmaceutical market in the MENA Region is predominantly 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.
The Branded business is now our largest business in terms of revenue. Revenue in
this business increased by 25.1% to $64.0 million in the first half of 2006,
compared to $51.1 million in the first half of 2005. The increase was due
primarily to strong demand for key products, especially Amoclan, Prograf and
Suprax, across most of our major MENA markets. Enhanced sales and marketing
efforts by the significantly enlarged sales force relative to the first half of
last year has also helped to drive revenues forward.
During the first half, the Branded business received 31 regulatory approvals in
the MENA region, including five in Jordan and 17 in Europe and other markets.
Algeria, Saudi Arabia and Jordan remained the Branded business's three key
markets in the first half of 2006. In Algeria in the first half, we grew our
market share to 3.4%, compared to 3.2% for the 2005 full year. We also
maintained our position as the seventh largest pharmaceutical manufacturer and
second largest generic pharmaceutical manufacturer by value in the Algerian
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, means we can now produce products locally for the Algerian
market. Our local presence is also helping us to expedite the registration of
new products in Algeria - where we received ten regulatory approvals in the
first half of the year. This compares to the five regulatory approvals received
by the Branded business as a whole in Algeria in the 2005 full year.
The new reference pricing system implemented in Algeria had a negative impact on
our operations during the first half of the year, forcing us to grant higher
discounts and distribution allowances in an effort to maintain sales. We were
able to partially offset the impact of the new system through the launch of new
products and line extensions and through higher sales volumes. Our performance
began to improve in the last two months of the first half and we expect this
trend to continue into the second half of the year.
Our strong performance in Saudi Arabia was driven, in part, by the addition of
35 new medical representatives in the second half of 2005 and through more
targeted sales and marketing efforts. In Saudi Arabia, our combined market share
in value terms, including that of our associated business JPI, increased to 3.8%
in the first half of 2006, compared to 3.5% for the 2005 full year, making us
the fifth largest pharmaceutical manufacturer in this market*.
In Jordan, as in Algeria and Saudi Arabia, sales growth was driven by the launch
of new products and by the enlarged sales team. In Jordan we maintained our
position as market leader during the first half of the year and increased our
market share to 7.1%, up from 6.4% for the 2005 full year.*
We are seeing growth in newer markets like the United Arab Emirates ('UAE'),
Sudan and Libya and launched our products in Yemen earlier this year. We expect
these new markets will make an increasing contribution to Branded sales.
Gross profit of the Branded business increased by 15.6% to $35.4 million,
compared to $30.6 million in the first half of 2005. The Branded business's
gross margin decreased to 55.3%, compared to 59.9% in the first half of 2005.
This decline reflects primarily the impact that reference pricing and new plant
expenses had on margins in Algeria.
Branded operating profit increased by 23.8% in the first half of 2006, to $22.0
million. Operating margins in the Branded business were 34.4% in the first half
of 2006, down from 34.8% in 2005.
Generic Pharmaceuticals
Revenue in our Generic business decreased by 4.2% to $53.8 million, compared to
$56.2 million in the first half of 2005. The change was primarily due to
continued price erosion in the US market, which was only partially offset by
volume increases. As expected, with only one new product launched during the
first half of the year, it was difficult to offset the pricing pressure on
existing products. During the first half, however, the Generic business received
seven ANDA approvals. We estimate the addressable market for these seven
approvals to be approximately $300 million, based on IMS estimates of 2005 US
sales. We expect sales from the launch of these products, as well as from
additional products approved in the second half, to help deliver growth in the
Generic business for the full year.
Gross profit of the Generic business decreased by 12.0% to $28.9 million,
compared to $32.9 million in the first half of 2005, reflecting continued price
erosion despite increased volumes and an increase in overheads as new facilities
and machinery came on line during the year, which increased the fixed cost base.
We were able to partially offset some of the impact of these factors through our
expertise in API sourcing, which helped us to reduce raw material costs during
the period. Generic gross margin was 53.8%, compared to 58.5% in the first half
of 2005.
Generic operating profit decreased by 20.0% to $17.5 million. Operating margins
in the Generic business decreased to 32.6% of revenue, compared to 38.9% in the
first half of 2005.
Injectable Pharmaceuticals
Our Injectables business manufactures injectable generic pharmaceutical products
in powder, liquid and lyophilised forms for sale across the MENA Region, the
United States and Europe. Injectables is our fastest growing and most
geographically diverse business, contributing 21.9% of total Group revenue in
the first half of 2006, compared to 16.9% in the first half of 2005 and 13.6% in
the first half of 2004.
Revenue in our Injectables business increased by 52.9% to $34.0 million,
compared to $22.2 million in the first half of 2005. The increase reflects
strong sales across all three regions.
During the first half, the Injectables business received 27 regulatory
approvals, including 2 in Europe, 20 in the MENA region and 2 tentative ANDA
approvals in the United States.
Revenues were particularly strong in Europe, where sales grew by 65.5%. The most
significant revenue growth was seen in Germany and Italy, driven by the launch
of new products and our enlarged sales and marketing presence. At the end of
June we had 14 sales and marketing representatives in Europe. During the second
half of the year, we expect to see an increasing contribution from Austria, The
Netherlands and Portugal, thanks to new product launches and enhanced sales and
marketing efforts. We also expect to launch a number of new products into the
German and Portuguese markets.
In the United States, Injectables sales increased by 60.3% to $9.3 million, in
part due to the newly established Hikma Pharmaceuticals (USA), Inc. We expect to
continue to build momentum in the US market in the second half of the year,
through the launch of new products and the continued penetration by our
Injectable sales force into the hospital market.
In the MENA Region, sales of injectables grew by 40.1% compared to the first
half of 2005. This strong performance was driven by more focused sales efforts,
particularly in Algeria and Saudi Arabia, the continuous introduction of new
products and formulations and the development of newer markets. At the end of
June we had a total of 55 sales and marketing representatives in the region. We
plan on increasing this number slightly in the second half of the year as we add
representatives in some of our newer markets. We expect that the enhanced
coverage of new markets, combined with the launch of a number of new products,
will drive continued growth in the second half of the year.
Injectables gross profit increased by 72.6% to $14.8 million, compared to $8.6
million in the first half of 2005. The Injectable Pharmaceuticals business's
gross margin increased to 43.5%, compared to 38.6% in the first half of 2005.
The increase in gross profit margin reflects the increasing scale of the
business as we achieve higher utilisation rates on the back of strong sales
across all regions.
Injectables operating profit increased by 115.1% to $7.6 million, compared to
$3.6 million in the first half of 2005, despite increased spending on R&D and
sales and marketing. Injectables operating margins improved to 22.5% in the
first half of 2006, up from 16.0% in the first half of 2005, also as a result of
the increased scale of the business.
The construction of our new cephalosporin plant in Portugal, which will host
three new production lines, warehouses and laboratory facilities, is near
completion and on track to begin production in early 2007.
Other businesses
Other businesses, which primarily include Arab Medical Containers, a
manufacturer of plastic specialised packaging, and International Pharmaceuticals
Research Centre (IPRC), which conducts bio-equivalency studies, had aggregate
revenue in the first half of 2006 of $3.1 million, or 2.0% of total Group
revenue, compared to aggregate revenue of $2.2 million in the first half of
2005.
Group performance
Revenue for the Group increased by 17.6% to $154.9 million, compared to $131.8
million in the first half of 2005. The increase was primarily due to excellent
performances in the Branded and Injectable businesses, which more than
compensated for the difficult market conditions in our Generic business in the
United States.
In the first half of 2006, 41.3% of revenue was generated by our Branded
Pharmaceuticals ('Branded') business, compared to 38.8% in the first half of
2005. 34.8% of revenue was generated by our Generic Pharmaceuticals ('Generic')
business, compared to 42.6% in the first half of 2005 and 21.9% was generated by
our Injectable Pharmaceuticals ('Injectables') business, compared to 16.9% in
the first half of 2005.
50.5% of revenue was generated in the Middle East and North Africa ('MENA')
region, compared to 46.2% in the first half of 2005. 40.7% of revenue was
generated in the United States, compared to 47.0% in the first half of 2005, and
8.8% of revenue was generated in Europe, compared to 6.7% in the first half of
2005.
The Group's cost of sales increased by 27.0% to $74.9 million, compared to $59.0
million in the first half of 2005. Cost of sales represented 48.4% of Group
revenue, compared to 44.8% in the first half of 2005. The Group's gross profit
increased by 9.9% to $80.0 million, compared to $72.8 million in the first half
of 2005. Group gross margin for the first half of 2006 was 51.6%, down from
55.2% in the first half of 2005, but in line with the 51.8% gross margin
achieved by the Group for the 2005 full year. While historically the Group has
maintained fairly stable gross margin on a full-year basis, we have seen
significant variations in gross margin from one half to the other, usually due
to variations in geographic and product sales mix. In respect of our continuing
operations, we expect the Group's gross margin in 2006 will remain relatively
stable over the course of the year.
Group operating expenses, analysed below, grew in the first half of 2006 by
18.7% to $40.1 million, compared to $33.8 million in the first half of 2005.
Sales and marketing expenses increased by 14.5% to $15.8 million, due primarily
to the increase in sales and marketing headcount in the MENA region and Europe
made in the second half of 2005. Sales and marketing expenses represented 10.2%
of Group revenue in the first half of 2006, compared to 10.5% in the first half
of 2005.
The Group's general and administrative expenses increased by 14.9% to $13.2
million, compared to $11.5 million in the first half of 2005. As expected, the
change arose mainly from the necessary costs associated with being a publicly
quoted company. General and administrative expenses represented 8.5% of Group
revenue in the first half of 2006, compared to 8.7% in the first half of 2005.
Investment in R&D for the Group increased by 25.8% to $9.0 million, compared to
$7.2 million in the first half of 2005. The benefit of our ongoing investment in
R&D has been seen primarily in the Generic Pharmaceuticals business, where we
continue to increase the number of ANDA filings and therefore have associated
bio-equivalency costs. Total investment in R&D represented 5.8% of Group
revenue, compared to 5.4% in the first half of 2005.
The Group's earnings from equity investments were $1.2 million in 2006, up from
$0.8 million in 2005. The increase is explained by an increased contribution
from JPI in Saudi Arabia, an associate business for the first half of 2006.
Operating profit for the Group increased by 3.3% to $42.2 million, compared to
$40.8 million in the first half of 2005. Group operating margin decreased to
27.2% in 2006, compared to 31.0% in the first half of 2005, due primarily to
increased investment in additional production capacity, sales and marketing, and
R&D, together with higher corporate costs attributable largely to being a
publicly quoted company.
Research & Development
In the six months to 30 June 2006, Hikma was granted 82 regulatory approvals,
including seven ANDAs and two tentative ANDAs. Also during this period, Hikma
submitted 37 regulatory filings, including 13 ANDAs. These comprised filings for
new products (pharmaceutical compounds not yet launched by the Company and
existing compounds being introduced into new regions) and line extensions (the
registration of new dosage strengths or forms of existing products).
We estimate that the currently marketed equivalent products of the 62 new
products covered by the Group's pending approvals had sales of approximately $14
billion in the year ended 31 December 2005 in the markets covered by the pending
approvals.
At 30 June 2006, we had a total of 96 pending approvals and 74 products under
development, the majority of which should receive several marketing
authorisations for differing strengths and/or product forms over the next few
years.
Filings as New product Pending Pending approvals of
of 30 June filings as of approvals as new products as of 30
2006 30 June 2006 of 30 June June 2006
2006
Generic
Pharmaceuticals
United States 10 10 24 20
Branded
Pharmaceuticals
Jordan 14 9 18 10
Europe 2 1 10 2
16 10 28 12
Injectable
Pharmaceuticals
United States 3 3 17 15
Jordan 7 5 15 9
Europe 1 1 12 6
11 9 44 30
37 29 96 62
Table includes filings and pending approvals in the US and Jordan and the first
filing in Europe. It does not include subsequent filings in additional European
markets or in other MENA countries.
Financial performance
Finance income
The Group's financing income includes interest income. Financing income
increased by $2.1 million to $2.5 million due to interest income received from
the proceeds of the Initial Public Offering ('IPO').
Interest expense
Interest expense was nearly unchanged at $2.4 million compared to the first half
of 2005. While proceeds from the IPO were used to pay down debt in the second
half of 2005 reduced the Group's interest expense, this was offset by increased
interest expense caused by rising interest rates on credit facilities used to
finance the Group's increased working capital requirements.
Profit before tax
Profit before taxes and minority interest for the Group increased by 9.5% to
$42.4 million, compared to $38.7 million in the first half of 2005.
Tax
The Group had tax expenses of $11.4 million in the first half of 2006. The
effective tax rate was 27.0%, a year on year decrease of 6.4 percentage points.
The tax rate decrease was primarily due to a shift in the geographic sales mix
towards lower tax countries, particularly in the MENA Region.
Profit for the period
The Group's profit attributable to equity holders of the parent grew by 19.9% to
$30.1 million for the year six months to 30 June 2006.
Earnings per share
Diluted earnings per share for the six months to 30 June 2006 were 17.2 cents,
up 2.9% from 16.7 cents in the first half of 2005.
Dividend
The Board has declared an interim dividend of 3.0 cents per share (approximately
1.6 pence per share). The Board is targeting a dividend payout for the full year
of 20%. The interim dividend will be paid on 27 October 2006 to shareholders on
the register on 29 September 2006 with an ex-dividend date of 27 September 2006.
Cash flow and investment
Net cash inflow from operating activities was $9.6 million, compared to $0.7
million in the first half of 2005. Net working capital increased by $29.4
million, primarily due to an increase in receivables, resulting from higher
sales, particularly in the MENA region, where collection periods are generally
higher. Overall, however, receivable days decreased in the first half to 105
days, down from 114 days at 30 June 2005. Inventory days were largely unchanged
at 160 days. Inventory has been maintained at this level in anticipation of a
further growth in sales in the second half of the year.
Capital expenditure
Net cash used for investing activities was $26.2 million, compared to $0.3
million in the first half of 2005. Of this, capital expenditure amounted to
$25.0million, compared to $8.9 million in the first half of 2005 and $23.4
million for the 2005 full year. This expenditure relates primarily to the new
cephalosporin plant in Portugal, the construction of a new quality control
laboratory and research and development facility in Jordan, and the expansion of
the lyophilisation plant in Italy - the funds for which were raised through the
Company's IPO in November of last year. During the first half of the year the
Group also made regular investments to upgrade and maintain existing facilities.
Balance sheet
The Group's cash balance decreased by $24.0 million in the first half of 2006 to
$117.1 million, from $141.1 million at 31 December 2005. The Group generated
$9.6 million through normal operating activities, which was offset by higher
working capital, capital expenditures, debt repayments and dividends.
The Group's net cash position at 30 June 2006 was $69.1 million, compared to a
net debt position of $32.8 million at 30 June 2005, reflecting proceeds raised
through the Company's IPO in November 2005. 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.
Intangible assets increased by $2.8 million from 30 June 2005. About $1.8
million of which relates to the second half of 2005 and arose mainly from the
good will re-evaluation of our newly acquired subsidiary, IBPP in Italy. The
increase in the first half of 2006 of $1.0 million is mostly due to the
acquisition of marketing files in the MENA region and Europe, capitalization of
ERP costs in Jordan and amortization.
INDEPENDENT REVIEW REPORT TO THE MEMBERS OF HIKMA PHARMACEUTICALS PLC
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 June 2006 which comprise the consolidated income
statement, the consolidated balance sheet, the consolidated cash flow statement,
the consolidated statement of changes in equity, and related notes 1 to 8. We
have read the other information contained in the interim report and considered
whether it contains any apparent misstatements or material inconsistencies with
the financial information.
This report is made solely to the company in accordance with Bulletin 1999/4
issued by the Auditing Practices Board. Our work has been undertaken so that we
might state to the company those matters we are required to state to them in an
independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than
the company, for our review work, for this report, or for the conclusions we
have formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures are consistent with
those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with International Standards on Auditing (UK and
Ireland) and therefore provides a lower level of assurance than an audit.
Accordingly, we do not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2006.
Deloitte & Touche LLP
Chartered Accountants
London, United Kingdom
12 September 2006
Consolidated Income Statement
H1 * H1 * FY *
Notes 2006 2005 2005
USD 000's USD 000's USD 000's
(Unaudited) (Audited) (Audited)
---------- --------- ---------
Revenue 2 154,913 131,775 262,215
Cost of sales 2 (74,945) (59,000) (126,424)
---------- --------- ---------
Gross profit 2 79,968 72,775 135,791
Sales and marketing costs (15,832) (13,833) (27,367)
General and administrative expenses (13,215) (11,506) (22,610)
Research and development costs (9,024) (7,171) (16,507)
Other operating expenses (2,045) (1,284) (3,556)
Other operating income 1,064 1,040 2,008
Share of results of associates 1,247 777 1,449
---------- --------- ---------
Operating profit 42,163 40,798 69,208
Flotation costs - (570) (1,426)
Finance income 2,547 490 1,562
Finance costs (2,441) (2,404) (5,211)
Other income 105 381 276
---------- --------- ---------
Profit before tax 42,374 38,695 64,409
Tax 3 (11,441) (12,938) (19,452)
---------- --------- ---------
Profit for the period 30,933 25,757 44,957
========== ========= =========
Attributable to:
Minority interest 857 667 1,090
Equity holders of the parent 30,076 25,090 43,867
---------- --------- ---------
30,933 25,757 44,957
========== ========= =========
Earnings per share (cents)
Basic 5 18.0 17.6 30.0
========== ========= =========
Diluted 5 17.2 16.7 28.3
========== ========= =========
Dividend per share (cents) 4 3.0 - 7.3
========== ========= =========
All trading resulted from continuing operations.
* On this page and throughout these interim statement, 'H1 2006' refers to the
six months ending 30 June 2006, 'H1 2005' refers to the comparative period and
'FY 2005' refers to the year ended 31 December 2005.
Consolidated Balance Sheet
30 June 30 June 31 December
Notes 2006 2005 2005
USD 000's USD 000's USD 000's
(Unaudited) (Audited) (Audited)
---------- --------- ---------
Non-current assets
Intangible assets 8,702 5,924 7,735
Property, plant and equipment 112,164 80,168 91,209
Interest in associate 8,797 6,880 7,552
Due from associate 3,886 1,757 2,304
Deferred tax assets 1,760 171 1,506
Available for sale investments 718 448 1,439
Financial and other non-current assets 1,368 1,097 1,276
---------- --------- ---------
137,395 96,445 113,021
---------- --------- ---------
Current assets
Inventories 66,921 52,561 58,017
Income tax recoverable - 2,603 1,320
Trade and other receivables 6 100,023 89,649 82,634
Collateralised cash 5,239 5,062 5,120
Cash and cash equivalents 111,818 46,150 135,959
Other current assets 1,760 1,825 1,891
---------- --------- ---------
285,761 197,850 284,941
---------- --------- ---------
Total assets 423,156 294,295 397,962
========== ========= =========
Current liabilities
Bank overdrafts and loans 20,696 34,455 21,146
Obligations under finance leases 517 1,357 797
Trade and other payables 42,589 35,016 44,017
Income tax provision 7,441 7,402 5,965
Other provisions 1,269 885 1,233
Other current liabilities 3,589 3,423 3,542
----------- ---------- ----------
76,101 82,538 76,700
----------- ---------- ----------
Net current assets 209,660 115,312 208,241
----------- ---------- ----------
Non-current liabilities
Long-term financial debts 25,675 44,709 30,791
Deferred income 400 473 416
Obligations under finance leases 1,075 2,954 1,411
Deferred tax liabilities 1,174 1,038 1,162
----------- ---------- ----------
28,324 49,174 33,780
----------- ---------- ----------
Total liabilities 104,425 131,712 110,480
=========== ========== ==========
Net assets 318,731 162,583 287,482
=========== ========== ==========
Equity
Share capital 29,554 25,269 29,457
Share premium 110,470 159 110,074
Reserves 174,441 133,961 144,350
----------- ---------- ----------
Equity attributable to equity
holders of the parent 314,465 159,389 283,881
Minority interest 4,266 3,194 3,601
----------- ---------- ----------
Total equity 318,731 162,583 287,482
=========== ========== ==========
Consolidated Statement of Changes in Equity
USD 000's
Total equity
attributable
Cumulative to equity
Merger Retained translation Total Share Share shareholders
30 June 2005 (Audited) reserve earnings reserve reserves Capital premium of the parent
--------- ----------- ----------- --------- --------- -------- -----------
At 1 January 2005 33,920 82,140 1,348 117,408 25,269 (187) 142,490
Cost of equity settled
employee share scheme - 330 - 330 330
Sale of treasury shares - - - - - 346 346
Dividends on ordinary
shares - (7,120) - (7,120) - - (7,120)
Profit for the period - 25,090 - 25,090 - - 25,090
Cumulative effect of
change in fair value of
financial derivatives - (77) - (77) - - (77)
Currency translation loss - - (1,670) (1,670) - - (1,670)
--------- ----------- ----------- --------- --------- -------- -----------
At 30 June 2005 33,920 100,363 (322) 133,961 25,269 159 159,389
========= =========== =========== ========= ========= ======== ===========
31 December 2005 (Audited)
At 1 January 2005 33,920 82,140 1,348 117,408 25,269 (187) 142,490
Issue of equity shares - - - - 4,188 - 4,188
Premium arising on issue
of equity shares - - - - - 120,725 120,725
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
stock 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)
--------- ----------- ----------- --------- --------- -------- -----------
At 31 December 2005 33,920 111,023 (593) 144,350 29,457 110,074 283,881
========= =========== =========== ========= ========= ======== ===========
30 June 2006 (Unaudited)
At 1 January 2006 33,920 111,023 (593) 144,350 29,457 110,074 283,881
Issue of equity shares - - - - 97 - 97
Premium arising on issue of
equity shares - - - - - 396 396
Cost of equity settled
employee share scheme - 443 - 443 - - 443
Deferred tax arising on
stock options - 108 - 108 - - 108
Dividends on ordinary
shares - (1,489) - (1,489) - - (1,489)
Profit for the period - 30,076 - 30,076 - - 30,076
Cumulative effect of change
in fair value of
available for sale investments - (718) - (718) - - (718)
Cumulative effect of change
in fair value of financial
derivatives - 157 - 157 - - 157
Currency translation gain - - 1,514 1,514 - - 1,514
--------- ----------- ----------- --------- --------- -------- -----------
At 30 June 2006 33,920 139,600 921 174,441 29,554 110,470 314,465
========= =========== =========== ========= ========= ======== ===========
Consolidated Cash Flow Statement
H1 H1 FY
Note 2006 2005 2005
USD 000's USD 000's USD 000's
(Unaudited) (Audited) (Audited)
---------- --------- ---------
Net cash from operating activities 7 9,623 747 32,713
Investing activities
Purchases of property, plant and
equipment (25,040) (8,948) (23,423)
Proceeds from disposal of property,
plant and equipment 289 438 873
Purchase of intangible assets (1,600) (240) (562)
Investment/(reduction) in financial
and other non-current assets 125 120 (78)
Disposal of financial and other
assets - 1,479 -
Investment/(disposal) in available
for sale securities 4 (39) (35)
Reduction of cash deposits - 7,692 7,692
Acquisition of subsidiary - (785) (825)
Cash acquired on acquisition
of subsidiary - 4 4
---------- --------- ---------
Net cash used in investing activities (26,222) (279) (16,354)
---------- --------- ---------
Financing activities
Proceeds from the sale of treasury shares - 346 346
Issuance of new shares 493 - 124,913
Increase in collateralised cash (119) (5,062) (5,120)
Increase in long-term financial debts 497 16,165 25,583
Repayment of long-term financial debts (5,611) (5,642) (20,895)
(Repayments)/increase in short-term
borrowings (448) 4,567 (15,659)
Net (repayments)/increase in obligations
under finance leases (615) 159 (3,109)
Dividends paid (1,489) (7,120) (17,800)
Costs of issue of new shares - - (10,810)
---------- --------- ---------
Net cash (used in)/from financing
activities (7,292) 3,413 77,449
---------- --------- ---------
Net (decrease)/increase in cash
and cash equivalents (23,891) 3,881 93,808
Cash and cash equivalents at
beginning of period 135,959 41,415 41,415
Effect of foreign exchange rate
changes (250) 854 736
---------- --------- ---------
Cash and cash equivalents at end of period 111,818 46,150 135,959
========== ========= =========
Notes to the interim accounts
1. Significant accounting policies
Basis of accounting
The unaudited financial information for the six months ended 30 June 2006 and
the comparative financial information for the six months ended 30 June 2005 has
been prepared, using the same accounting policies and, with the exception of the
classification of certain receivables and payables, on a basis consistent with
the audited full year results for the year ended 31 December 2005. The
reclassification of certain receivables and payables is explained in note 6 to
the interim accounts. The financial information has been prepared under the
historical cost convention, except for the revaluation to market of certain
financial assets and liabilities.
The financial information for the year ended 31 December 2005 does not
constitute statutory accounts within the meaning of Section 240 of the Company's
Act 1985. Statutory accounts for the year ended 31 December 2005, which were
prepared under International Financial Reporting Standards (IFRSs) issued by the
International Accounting Standards Board, have been filed with the Registrar of
Companies. The auditor's report on those accounts was unqualified and did not
contain any statement under Section 237 of the Companies Act 1985.
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).
2. Business and geographical segments
For management purposes, the Group is currently 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.
H1 2006 Generics Branded Injectable Others Group
USD 000's
(Unaudited)
Revenue 53,842 63,974 33,983 3,114 154,913
Cost of sales (24,899) (28,590) (19,191) (2,265) (74,945)
-------- -------- --------- -------- --------
Gross profit 28,943 35,384 14,792 849 79,968
-------- -------- --------- -------- --------
Result
Segment result 17,530 22,013 7,641 (100) 47,084
======== ======== ========= ========
Unallocated corporate
expenses (6,168)
Share of results of
associates - 1,247 - - 1,247
======== ======== ========= ======== --------
Operating profit 42,163
Finance income 2,547
Finance costs (2,441)
Other income 105
--------
Profit before tax 42,374
Tax (11,441)
--------
Profit for the period 30,933
Attributable to:
Minority interest 857
Equity holders of the
parent 30,076
--------
30,933
========
2. Business and geographical segments (continued)
H1 2005 Generics Branded Injectable Others Group
USD 000's
(Audited)
Revenue 56,179 51,130 22,227 2,239 131,775
Cost of sales (23,299) (20,518) (13,655) (1,528) (59,000)
--------- -------- --------- -------- --------
Gross profit 32,880 30,612 8,572 711 72,775
--------- -------- --------- -------- --------
Result
Segment result 21,842 17,778 3,553 686 43,859
========= ======== ========= ========
Unallocated corporate
expenses (3,838)
Share of results of
associates - 777 - - 777
========= ======== ========= ======== --------
Operating profit 40,798
Flotation costs (570)
Finance income 490
Finance costs (2,404)
Other income 381
--------
Profit before tax 38,695
Tax (12,938)
--------
Profit for the period 25,757
Attributable to:
Minority interest 667
Equity holders of the
parent 25,090
--------
25,757
========
2. Business and geographical segments (continued)
FY 2005 Generics Branded Injectable Others Group
USD 000's
(Audited)
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
=========
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
------------------------
H1 H1 FY
2006 2005 2005
USD 000's USD 000's USD 000's
(Unaudited) (Audited) (Audited)
--------- -------- --------
United States 63,110 61,971 130,454
Europe and Rest of the World 13,580 8,884 20,478
Middle East and North Africa 78,223 60,920 111,283
--------- -------- --------
154,913 131,775 262,215
========= ======== ========
3. Tax
H1 H1 FY
2006 2005 2005
USD 000's USD 000's USD 000's
(Unaudited) (Audited) (Audited)
---------- --------- ---------
Current tax:
UK current tax 207 - 110
Foreign tax 11,234 12,644 19,596
Deferred tax - 294 (254)
---------- --------- ---------
11,441 12,938 19,452
========== ========= =========
4. Dividends
The board has recommended a dividend of USD 5 million, equivalent to 3.0 cents
per share, (30 June 2005: nil), (31 December 2005: 7.5 cents per share) as the
dividend in respect of the interim period to be paid on 27 October 2006 to all
shareholders on the registrar on 29 September 2006.
5. Earnings per share
The calculation of the basic and diluted earnings per share is based on the
following data:
H1 H1 FY
2006 2005 2005
USD 000's USD 000's USD 000's
(Unaudited) (Audited) (Audited)
---------- --------- ---------
Earnings for the purposes of basic and
diluted earnings per share being net profit
attributable to equity holders of the
parent 30,076 25,090 43,867
========== ========== =========
Number Number Number
---------- --------- ---------
Number of shares '000 '000 '000
Weighted average number of ordinary shares for
the purposes of basic earnings per share 166,987 142,400 146,454
Effect of dilutive potential ordinary shares :
Share options 8,335 7,843 8,402
---------- --------- ---------
Weighted average number of ordinary shares for
the purposes of diluted earnings per share 175,322 150,243 154,856
========== ========== =========
Basic / Cents per share 18.0 17.6 30.0
---------- --------- ---------
Diluted / Cents per share 17.2 16.7 28.3
---------- --------- ---------
6. Trade and other receivables
30 June 30 June 31 December
2006 2005 2005
USD 000's USD 000's USD 000's
(Unaudited) (Audited) (Audited)
---------- -------- ----------
Trade receivables 90,754 83,436 72,609
Other prepayments 3,987 3,179 5,389
Interest receivable 413 184 217
Employee advances 69 167 68
Value added tax recoverable 4,735 2,657 3,889
Other receivables 65 26 462
--------------- ------------- -------------
100,023 89,649 82,634
=============== ============= =============
Trade receivables are presented net of commissions and distribution allowances
of $ 5,874,000 (June 2005:$ 3,705,000, December 2005: $ 4,832,000) which had
previously been presented as liabilities within 'Trade and other payables'. The
balance sheets at 30 June 2005 and 31 December 2005 reflect this adjustment.
Current assets and current liabilities at these dates have decreased by the same
amounts. Net current assets and net assets are unchanged.
7. Net cash from operating activities
H1 H1 FY
2006 2005 2005
USD 000's USD 000's USD 000's
(Unaudited) (Audited) (Audited)
---------- --------- ---------
Profit before tax and minority interest 42,374 38,695 64,409
Adjustments for:
Depreciation and amortisation of:
Property, plant and equipment 5,305 4,265 8,909
Intangible assets 632 558 1,416
Results from associated companies (1,247) (777) (1,449)
Losses on disposal of property, plant and
equipment 62 425 440
Gains from sale of investments (60) (120) -
Movement on provisions (96) 56 152
Deferred income (16) (118) (174)
Cumulative effect of change in fair value of
derivatives - (77) 164
Stock options granted 443 330 713
Finance income (2,547) (490) (1,562)
Interest and bank charges 2,441 2,404 5,211
--------------- ------------- -------------
Cash flow before working capital 47,291 45,151 78,229
Change in trade and other receivables (17,389) (27,310) (20,544)
Change in due from associate (1,582) (144) (691)
Change in other current assets 4,963 (981) 219
Change in inventories (8,905) (7,850) (13,306)
Change in trade and other payables (1,428) 6,513 14,297
Change in other current liabilities (5,033) (2,361) (4,029)
--------------- ------------- -------------
Cash generated by operations 17,917 13,018 54,175
Income tax paid (8,646) (10,320) (17,800)
Finance income 2,547 490 1,562
Interest paid (2,195) (2,441) (5,224)
--------------- ------------- -------------
Net cash generated from operating
activities 9,623 747 32,713
=============== ============= =============
8. Post Balance sheet events
On 11 September 2006 the group acquired the remaining 52.5% share capital of
Al-Jazeera Pharmaceutical industries for USD 21,000,000.
--------------------------
* Following the IPO in November 2005, the weighted average number of shares for
the first half of 2006 was 166,987,000 shares (H1 2005: 142,400,000).
(1) Approvals comprise approvals for new products (pharmaceutical compounds not
yet launched by the Group), existing compounds being registered in new regions
and countries, and line extensions
(2)Filings comprise filings for new products and new line extensions and
for,existing compounds and line extensions being introduced into new regions
* Source: IMS Health, MAT 6/2006.
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