22nd Mar 2007 07:03
Hikma Pharmaceuticals Plc22 March 2007 Hikma Pharmaceuticals PLC Preliminary results announcement for the year ended 31 December 2006 LONDON, 22 March 2007 - Hikma Pharmaceuticals PLC ("Hikma")(LSE:HIK)(DIFX:HIK),a multinational pharmaceutical group focused on developing, manufacturing andmarketing a broad range of generic and in-licensed pharmaceutical products,today reports its preliminary results for the year ended 31 December 2006. Revenue up 20.9% to $317.0 millionOperating profit up 8.7% to $75.2 millionProfit before tax up 17.4% to $75.6 millionProfit attributable to shareholders up 24.3% to $54.5 millionDiluted earnings per share up 9.5% to 31.0 centsResearch and development costs up 10.8% to $18.3 million • Achieved revenue growth for the Group of 20.9% with particularly strong performance in the Branded and Injectable businesses whose revenues increased by 39.9% and 37.1% respectively • Delivered 24.3% growth in profit attributable to shareholders • Consolidated our position in the fast growing Saudi Arabian and the wider GCC market through the acquisition of the remaining 52.5% share of JPI not previously owned by Hikma • Substantially increased capacity, with the addition of a new manufacturing plant in Algeria, the completion of our new cephalosporin plant in Portugal, and the expansion our facilities in Jordan and the US • Launched 23 new products, received 191 regulatory approvals and submitted 88 regulatory filings during the year Commenting on the results, Samih Darwazah, Chairman and Chief Executive ofHikma, said: "We are very pleased with the performance of Hikma in our first full year as alisted company. Our diverse business model continues to provide strong growth,particularly in our Branded and Injectable businesses, which more thancompensated for the industry-wide market challenges in the Generic business inthe US. In 2006, we consolidated our strong position in Saudi Arabia and completedconstruction of our state-of-the-art injectable cephalosporin plant in Portugal,continuing to deliver on the objectives we promised at the IPO. This year, wehave continued this trend, recently acquiring Ribosepharm, and we look forwardto 2007 with considerable confidence." Enquiries: Hikma Pharmaceuticals PLC Bassam Kanaan, Chief Financial Officer On the day Tel: +44 (0)7776 477 050 Susan Ringdal, Investor Relations Director Thereafter Tel: +44 (0)20 7399 2760 Brunswick Group Jon Coles / Justine McIlroy / Alexandra Tweed Tel: +44 (0)20 7404 5959 Hikma Pharmaceuticals PLC's presentation to analysts and investors will bewebcast live at 09:30 on 22 March 2007 and can be accessed via the Group'swebsite at www.hikma.com. It will be available as an archive to replay via thewebsite from 12:00 noon. CHAIRMAN AND CHIEF EXECUTIVE'S REVIEW Overview In our first full year as a listed company, Hikma has delivered strong financialresults, benefiting from the strength and diversity of our business model. Inaccordance with our strategy, we have achieved excellent performances in boththe Branded and Injectable businesses, which have more than compensated for thechallenging market conditions in our Generic business in the United States. We are already well on our way to achieving the main objectives set out at thetime of our IPO. Since then, we have repaid $50 million in outstanding debt. Wehave increased capacity, having completed and commenced production at ourAlgerian plant, completed the construction of our new dedicated cephalosporinplant in Portugal and invested in improvements at our Jordanian, Italian and USmanufacturing facilities. We have also begun to execute our acquisitionstrategy, through two significant acquisitions. Financial results The Group performed well in 2006, achieving revenue of $317.0 million, up 20.9%from 2005. Gross margin for the Group was 50.0%, down from 51.8% in 2005, butstill very strong when compared to our industry peers. Operating profit grew by8.7% to $75.2 million, while operating margins decreased to 23.7%, compared to26.4% in 2005, primarily as a result of increased overheads related to our newAlgerian plant, the continued price erosion in the Generic business and anincrease in the Group's general and administrative expenses. The Group's profitattributable to shareholders increased by 24.3% to $54.5 million and dilutedearnings per share increased by 9.5% to 31.0 cents. Business highlights We ended 2006 with a total of 176 products in our portfolio in 397 dosagestrengths and forms, including the 23 products launched during the year and 26under-licence products. During 2006, we were granted 191 regulatory approvalsacross all geographies. In addition, we submitted a total of 88 regulatoryfilings, including 54 new product applications. As of 31 December 2006, we had atotal of 117 pending approvals in Jordan, the United States and Europe alone,and 105 products under development. In addition, at JPI we have 125 productspending approval. (1) In our Branded business, we were able to leverage the investment made in salesand marketing in 2005 to drive significant growth across both existing and newermarkets. Through these efforts we achieved market share gains in each of ourthree largest markets - Algeria, Saudi Arabia and Jordan. These results wereachieved despite disruption in the Algerian market caused by the implementationof a new reference pricing regime. In Algeria, we have delivered double-digitgrowth compared to 2005 as a result of the introduction of new products and thecommencement of production at our new manufacturing facility. We have continued to consolidate our strong position in the MENA region throughthe acquisition of the remaining 52.5% shareholding in JPI. The benefits of theexcellent platform we have created for accessing the GCC market are alreadybeing seen. JPI contributed $11.7 million in sales for the four months ended 31December 2006. For the first eight months of the year, and in previous years,JPI was treated as an associate. ----------------------(1) Definitions of products, filings and approvals are provided in the businessreview. In our Injectable business, we delivered strong sales growth as we continued todevelop our sales and marketing infrastructure across all three regions. We nowhave a strong platform from which to drive future sales in each region. Saleswere particularly strong in the MENA region, especially in Saudi Arabia andSudan, where we established new customer relationships and distributionchannels. Sales growth was also strong in Europe, and especially in Germany,where our distribution agreements with Hospira are enhancing our productoffering and facilitating the penetration of our products in the Europeanmarket. In the United States, we set up a specialised distribution company,Hikma Pharmaceuticals (USA) Inc., with a dedicated sales force for injectables. In our Generic business, sales declined by 1.3% compared to 2005 as a result ofcontinued price erosion and a limited contribution from new product launches.However, we were successful in renewing for the fourth option year our salescontract with the Department of Veterans Affairs, an agency of the government ofthe United States, for the supply of Lisinopril. Overall, we enhanced our manufacturing facilities across the Group during theyear, significantly increasing our manufacturing capacity in order to meet thegrowing demand across our core businesses. Early in 2006, we opened a newmanufacturing plant in Algeria and we announced FDA approval of the facilitiesof JPI for the manufacture of oral cephalosporin products for sale in the USmarket. The construction of our new injectable cephalosporin plant in Portugalwas completed by the year end and continues to be on track to begin commercialproduction in the first half of 2007. Board appointments In December 2006, Dr. Ronald Goode was appointed to the Board. Dr. Goode servesas an independent non-executive Director and as a member of both the Audit andRemuneration Committees. He has spent over 30 years in the internationalpharmaceutical industry, including having held senior positions with Pfizer andSearle, and is currently a director of Genitope Corporation, a NASDAQ-listedcompany. Dr. Goode was formerly President and Chief Executive Officer of UnimedPharmaceuticals, Inc. and eXegenics Inc., and a director of several othercompanies, including Hokuriku Seiyaku and Vitro Diagnostics. Dividend The Board has recommended a final dividend for the year to 31 December 2006 of4.0 cents per share (approximately 2.1 pence per share), which makes a total of7.0 cents per share for the year. The proposed final dividend will be paid on 18June 2007 to shareholders on the register on 18 May 2007, subject to approval atthe Annual General Meeting. Developments in 2007 In January 2007, we announced the acquisition of Ribosepharm GmbH, an oncologycompany specialising in the marketing and distribution of injectable oncologyproducts both to private practices and hospitals in Germany. This acquisitionenhances our injectable product portfolio, develops our sales and marketingcapabilities and provides us with an excellent platform from which to enter thelarge and fast-growing oncology market. Our product portfolio and product pipeline have continued to develop in 2007. Inthe first two months of the year we received a total of 14 regulatory approvals,submitted 9 regulatory filings and launched 4 new products. Looking forward We expect both our Branded and Injectable businesses to deliver strong salesgrowth in 2007, through a focus on key products, the launch of new products andexpansion into new markets. We expect the pricing environment in the UnitedStates to remain competitive. However, we will work diligently to minimise theeffects of this pricing pressure on our Generic business by introducing newproducts and retaining our strategic focus on reducing raw material costs. The integration of JPI has been successfully completed and the integration ofRibosepharm is proceeding in line with expectations. Further development of ourinjectable product portfolio and our injectable sales, marketing andmanufacturing capabilities is essential to our growth strategy for this businessand we will continue to work to achieve this both through organic growth andacquisitions. At the same time, we remain focused on our aim to consolidate ourstrong position in the MENA region and we continue to evaluate acquisitionopportunities in our target markets - Egypt, Morocco and Turkey. We areconfident that the strength and diversity of our business will enable us tocontinue our track record of delivering strong growth within the Group. BUSINESS REVIEW Branded Pharmaceuticals The pharmaceutical market in the MENA region tends to be a branded market, inwhich patented, generic and OTC pharmaceutical products are marketed underspecific brand names. Our Branded business manufactures branded genericpharmaceutical products for sale across the MENA region and, increasingly,Europe. Revenue in the Branded business, our largest business segment, increased by39.9% to $130.1 million, compared to $93.0 million in 2005. Excluding JPI, whichcontributed $11.4 million, underlying sales growth was 27.6%, primarily due tofocused sales and marketing efforts and new product registrations. Algeria, Saudi Arabia, Jordan and Sudan were the Branded business's largestmarkets in 2006. In Algeria we recovered strongly from the disruptions caused bythe introduction of reference pricing in the beginning of the year, deliveringdouble-digit sales growth. Following the approval of our new manufacturingfacility in Algeria, new product registrations and local manufacturing approvalshave helped to drive growth in this market. During the year, we received 26product approvals in Algeria, including four for new products and 20 localmanufacturing approvals. In 2006, our market share in Algeria increased to 3.9%,compared to 3.3% in 2005 and we are now the sixth largest pharmaceuticalmanufacturer and second largest generic pharmaceutical manufacturer by value inthe Algerian market.2 While we expect the reference pricing system introduced bythe Algerian Ministry of Labour and Social Security Affairs in early 2006 willcontinue to impact prices in the Algerian market, we believe that the strengthof our current market position and our developing product portfolio will enableus to mitigate further price reductions. In Saudi Arabia, we delivered excellent growth as we continued to see thebenefits of the investment in sales and marketing that was made in 2005, when 35sales and marketing representatives were added to the sales team. In 2006, weincreased our market share, which includes JPI, to 4.0%, compared to 3.8% in2005, making us the fifth largest player in the Saudi Arabian market. (2) Duringthe year 3 new products were launched in Saudi Arabia. ---------------------(2) Source: IMS Health During the year we increased our shareholding in JPI, our associate in SaudiArabia, to 100% for a cash consideration of $21.0 million. Through thisacquisition we are benefiting from an enhanced product portfolio and fasterproduct delivery in the GCC region, improved registration times, and an increasein the number of sales representatives covering the region. At the end of 2006,JPI had a total of 31 products in 82 dosage strengths in its product portfolio,including 13 products in 21 dosage strengths that are new to Hikma. Growth in the Jordanian market was also strong in 2006 and well ahead of theunderlying market. As in Saudi Arabia, we benefited in the Jordanian market fromthe investment in sales and marketing that was made in the second half of 2005,when 16 sales representatives were added. We received 7 new product approvalsand launched 3 new products in the Jordanian market during the year andincreased our market share to 7.3%, compared to 6.8% in 2005, maintaining ourposition as market leader. (3) Sudan, the Branded business's fourth largest market, performed extremely well,largely due to an increased product focus and better geographical coverage,combined with a more stable operating environment. While market data is notreadily available for the Sudanese market, we believe that we now have a leadingposition in this market. We also achieved strong performances in some of our newer and smaller markets,including Libya, UAE and South Africa, driven mainly by better brand recognitionand product launches. Revenue from the Branded business's top-ten sellers represented 73.0% of Brandedrevenue in 2006. Leading products included Amoclan, Oprazole, Penamox, Prografand Suprax. Sales from under-licensed products represented 34.1% of sales in2006. During the year, 2 new licensing agreements were signed, bringing thetotal number of products under-license in the Branded business to 25. (4) Gross profit of the Branded business increased by 29.3% to $69.5 million,compared to $53.7 million in 2005. The Branded Pharmaceuticals business's grossmargin decreased to 53.4%, compared to 57.8% in 2005. This change in grossprofit margin is attributed to an increase in overheads associated with the newAlgerian manufacturing facility that came on stream in early 2006, and anincrease in discounts granted in the Algerian market in relation to the newreference pricing system. The Branded business's operating profit (before associates) increased by 36.9%in 2006, to $39.4 million. Through a strict focus on operating efficiencies,operating margins in the Branded business remained stable at 30.3% in 2006,compared to 30.9% in 2005, despite the inclusion of additional operatingexpenses from JPI. As previously indicated, JPI will have a slightly dilutiveeffect on Branded operating profit margins in 2007. We expect this will be mostapparent in the first half of the year, given the seasonality we traditionallysee in the Branded business. In line with our strategic objectives for the Branded business, we launched atotal of 6 new products in 2006, 3 in Jordan and 3 in Saudi Arabia. The totalnumber of Branded sales and marketing staff at year end was 443, which includes128 sales and marketing staff at JPI. Excluding JPI, the number of sales andmarketing staff increased slightly to 315, compared to 286 in 2005, as webenefited from the investment in sales and marketing that was made in 2005. ------------------(3) Source: IMS Health (4) At the end of 2006, 18 of these products were sold in the Branded business. A further two were launched in the beginning of 2007 an additional five arepending launch. Injectable Pharmaceuticals Our Injectable business manufactures injectable generic pharmaceutical productsin powder, liquid and lyophilised forms for sale across the MENA region, Europeand the United States. The Injectable business contributed 21.3% of total Grouprevenue in 2006, compared to 18.8% in 2005. Revenue in our Injectable business increased by 37.1% to $67.6 million, comparedto $49.3 million in 2005. The increase was due primarily to strong performancesin Europe and the MENA region, where sales grew as a result of our continuedfocus on sales and marketing. During the year, the Injectable business received 48 regulatory approvals,including 28 in Europe, 32 in the MENA region and 3 in the United States. 12 ofthese approvals were for new products, the rest were for new dosage strengths orforms. Revenues were strong in Europe, particularly in Germany, where sales were drivenby an increasingly strong product portfolio and our enlarged sales and marketingpresence. Demand for our lyophilized injectable products and a strongperformance in Portugal also boosted European Injectable sales, as did the salesand distribution agreements signed with Hospira in the beginning of 2006. At theend of December we had 14 sales and marketing representatives in Europe. The Injectable business also performed well in the MENA region, especially inSaudi Arabia and Sudan. This strong performance was driven by more focused salesefforts, the continuous introduction of new products and formulations and thedevelopment of newer markets including Lebanon and Libya. Strong demand fortender business also boosted sales, especially in the second half of the year.At the end of December we had a total of 58 sales and marketing representativesin the MENA region. In the United States, at the beginning of the year we established a specialisedinjectable distribution company, Hikma Pharmaceuticals (USA), Inc.. Sales inthis part of the business grew modestly due to a lower than expectedcontribution from new product sales as a result of delays in new productapprovals. Across the Injectable business, 14 new products were launched during the year,including 6 in Jordan, 3 in the United States and 5 in Europe. Revenue from the Injectable business's top-ten sellers represented 68.7% ofInjectable revenue in 2006. Cephalosporins continue to be the segment's topsellers. Gross profit of the Injectable business increased by 53.9% to $28.3 million,compared to $18.4 million in 2005. The Injectable business's gross marginincreased to 41.9%, compared to 37.4% in 2005. Injectable operating profitincreased by 57.4% to $13.4 million, compared to $8.5 million in 2005, despitean increase in spending on sales and marketing in anticipation of a number ofnew product launches. Injectable operating margins improved to 19.8% in 2006, upfrom 17.2% in 2005. The increase in both gross and operating profit marginreflects the increased scalability of the business as we achieved higherutilisation rates. During the year, we focused on developing our sales and marketing capabilitiesacross all geographies and ended the year with 58 sales and marketingrepresentatives in the MENA Region, and 14 in Europe, including 5 in Portugaland 7 in Germany, and 5 in the United States. Also in 2006, we completed the construction of our new cephalosporin plant inPortugal, which is on track to begin production in the first half of 2007. In January 2007, we acquired Ribosepharm GmbH, an oncology company specialisingin the marketing and distribution of injectable oncology products both toprivate practices and hospitals in Germany, for cash consideration of $45.0million. This acquisition provides us with an excellent platform from which toenter the large and fast-growing oncology market. Ribosepharm currently has 11sales representatives in the German market. Generic Pharmaceuticals With higher growth rates in Branded and Injectables, the Generic businesscontributed 35.9 % of total Group revenue in 2006, compared to 43.9% in 2005.Consistent with 2005, all Generic revenues were generated in the United States. As anticipated, 2006 was a challenging year for our Generic business. Revenuedecreased by 1.3% to $113.7 million, compared to $115.2 million in 2005. Thechange was primarily due to continued price erosion, which was only partiallyoffset by volume increases, and a limited contribution from new productlaunches. During the year, 3 new products were launched. Revenue from the Generic business's top-ten sellers represented 70.8% of Genericrevenue in 2006. Leading products included lisinopril, doxycycline andmethocarbamol. In December 2006, we successfully renewed our sales contract with the Departmentof Veterans Affairs, an agency of the government of the United States, for thesupply of Lisinopril. This renewal represented the exercise of the 4th OptionYear for the contract with a contract period between 21 December 2006 and 20December 2007. The contract was renewed at a slight discount to last year'srenewal price. All other terms and conditions of the contract remain unchanged.Lisinopril accounted for 34.6% of Generic revenue and 12.4% of Group revenue in2006. Gross profit of the Generic business decreased by 4.1% to $59.8 million,compared to $62.3 million in 2005. Gross margin in the Generic business was52.6%, compared to 54.1% in 2005. This reflects the price erosion experienced inthis market, as well as an increase in overheads as new facilities and machinerycame on line during the year. These factors were only partially offset by animprovement in raw material costs. Generic operating profit decreased by 7.1% to $36.0 million. Operating profitmargins in the Generic business decreased to 31.7% of revenue, compared to 33.6%in 2005. The decrease in operating margin is attributed to price erosion and theincrease in overheads mentioned above, as operating expenses remained largelyunchanged. Other businesses Other businesses, which include primarily Arab Medical Containers, amanufacturer of specialised plastic packaging, and International PharmaceuticalsResearch Centre (IPRC), which conducts bio-equivalency studies, had aggregaterevenue in 2006 of $5.7 million, or 1.8% of total Group revenue. Otherbusinesses delivered an operating loss of $1.2 million in 2006, compared to$0.03 million in 2005, as a result of an increase in investment in research anddevelopment. Group performance Revenue for the Group increased by 20.9% to $317.0 million, compared to $262.2million in 2005. On an underlying basis, excluding JPI, revenue increased by16.4%. The increase was primarily due to strong increases in revenue in both theBranded and Injectable businesses. In 2006, 41.0% of revenue was generated by our Branded business, 35.9% ofrevenue was generated by our Generic business and 21.3% by our Injectablebusiness. Geographically, 49.7% of revenue was generated in the MENA region,while 40.9% of revenue was generated in the United States and 9.3% in Europe. The Group's gross profit increased by 16.7% to $158.5 million, compared to$135.8 million in 2005. Group gross margins for 2006 were 50.0% of revenue,compared to 51.8% in 2005. On a segmental basis, gross margins improved in theInjectable business, but declined in the Branded business, due to an increase inoverheads related to the new Algerian plant and the impact of reference pricingin Algeria, and in the Generic business due to continued price erosion. Group operating expenses increased in 2006 by 23.8% to $84.2 million, comparedto $68.0 million for 2005, mainly due to higher sales and marketing expenses inthe Injectable business, an increase in corporate expenses related to being apublic company and the consolidation of JPI for the last four months of theyear. Sales and marketing expenses increased by 27.9% to $35.0 million, due primarilyto an increase in investment in sales and marketing infrastructure in theInjectable business and the consolidation of the sales and marketing expenses ofJPI. Sales and marketing expenses represented 11.0% of Group revenue in 2006,compared to 10.4% in 2005. The Group's general and administrative expenses increased by 34.1% to $30.3million, compared to $22.6 million in 2005. As anticipated, the change can beattributed to an increase in corporate expenses, which increased by $5.0 millionto $13.2 million as we continued to strengthen corporate functions to supportthe demands of being a publicly listed company. General and administrativeexpenses represented 9.6% of Group revenue in 2006, compared to 8.6% in 2005. Investment in R&D for the Group increased by 10.8% to $18.3 million, compared to$16.5 million in 2005. This increase can be attributed to ongoing investment inthe development of our product portfolio. Total investment in R&D represented5.8% of Group revenue in 2006, compared to 6.3% in 2005. Other net operating expenses, which consist mainly of provisions against slowmoving items partially offset by foreign exchange gains and management fees froman associate, were $0.6 million, compared to $1.5 million in 2005. The share of results of associates was $0.9 million in 2006, compared to $1.4million in 2005. This change reflects JPI's status as an associate business foronly 8 months of 2006. Operating profit for the Group increased by 8.7% to $75.2 million, compared to$69.2 million in 2005. Group operating margin declined by 2.7 percentage pointsto 23.7% in 2006, compared to 26.4% of revenue in 2005, primarily as a result ofincreased overheads related to our new Algerian plant, the continued priceerosion in the Generic business and the increase in the Group's general andadministrative expenses. Research & Development In the year to 31 December 2006, Hikma submitted 88 regulatory filings,including 32 ANDAs. These included filings for new products, which includepharmaceutical compounds not yet launched by Hikma, existing compounds beingintroduced into new regions and countries, and line extensions (the registrationof new dosage strengths or forms of existing products). Filings in New product Pending Pending approvals 2006(5) filings in approvals as of new products as 2006 of 31 December of 31 December 2006 2006 ---------- ---------- ---------- ----------GenericPharmaceuticalsUnited States 20 17 31 23 ---------- ---------- ---------- ---------- BrandedPharmaceuticalsMENA* 28 14 17 9Europe and ROW 3 1 11 2 ---------- ---------- ---------- ---------- 31 15 28 11 InjectablePharmaceuticalsUnited States 12 9 25 20MENA* 15 9 18 9Europe 10 4 15 8 ---------- ---------- ---------- ---------- 37 22 58 37 ---------- ---------- ---------- ---------- 88 54 117 71 ========== ========== ========== ========== * Includes only the first filing of a product or line extension in the MENAregion. We estimate that the currently marketed equivalent products of the 71 newproducts covered by the Group's pending approvals had sales of approximately$23.7 billion in the year ended 31 December 2006 in the markets covered by ourpending approvals(6). -----------------(5) Products are defined as pharmaceutical compounds sold by the Group. New products are defined as pharmaceutical compounds not yet launched by the Group and existing compounds being introduced into a new segment or a new region. Line extensions are new forms or dosage strengths. Filings include only filings for new products and the first filing of line extensions in a segment or region. Approvals are comprehensive and include approvals for new products and line extensions and approvals in new countries. Pending approvals include only applications that are pending for new products and the first filing of a line extension in a segment or region. (6) Source: IMS Health. This figure does not include the market potential of ourpending injectable approvals in the MENA region. At 31 December 2006, we had a total of 105 new products under development, themajority of which should receive several marketing authorisations, includingseparate marketing authorisations in differing strengths and/or product formsbetween 2007 and 2009. FINANCIAL REVIEW Finance income The Group's financing income includes interest income and net foreign exchangegains from non trading activities. Financing income increased by $3.7 million to$5.3 million in 2006, compared to $1.6 million in 2005. The increase was dueprimarily to interest earned on proceeds generated from the Group's IPO andinterest generated from cash deposits in the United States. Finance costs Financing costs decreased by $0.2 million to $5.0 million, compared to $5.2million in 2005. While overall debt levels increased during the year, this isdue to the consolidation of JPI. On an underlying basis, excluding JPI, totaldebt decreased by 14.2% to $46.5 million as of 31 December 2006. Profit before tax Profit before taxes and minority interest for the Group increased by $11.2million, or 17.4%, to $75.6 million, compared to $64.4 million in 2005. Tax The Group had a tax expense of $19.6 million in 2006. The effective tax rate was26.0%, a year on year decrease of 4.2 percentage points. The tax rate decreasewas 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 ofthe origin of production towards subsidiaries in lower tax countries. Minority interest Hikma's minority interest increased to $1.4 million in 2006, compared to $1.1million in 2005. Profit for the year The Group's profit for the year attributable to equity holders of the parentgrew by 24.3% to $54.5 million for the year ended 31 December 2006, compared to$43.9 million in 2005. Earnings per share Diluted earnings per share for the year to 31 December 2006 were 31.0 cents, up9.5% from 28.3 cents in 2005. Dividend The Board has recommended a final dividend of 4.0 cents per share (approximately2.1 pence). The proposed final dividend will be paid on 18 June 2007 toshareholders on the register on 18 May 2007, subject to approval at the AnnualGeneral Meeting. Cash flow and capital expenditure $35.1 million of generated cash flows were invested in working capital tosupport sales growth, resulting in a net cash inflow from operating activitiesof $35.2 million as of 31 December 2006, compared to $32.7 million in 2005. Debtor days increased from 101 days in 2005 to 126 days in 2006, due to theconsolidation of JPI. Excluding JPI, debtor days increased slightly to 107 days.This increase was mainly as a result of a temporary increase in receivablesduring the fourth quarter of the year. Using the count back method to calculatedebtor days (i.e. counting back the year end receivable balance by respectivemonthly sales), debtor days were stable at 102 days and 103 days as at 31December 2005 and 31 December 2006, respectively. Inventory days increased from 168 days to 194 days primarily due to a strategicdecision in the United States to enhance service levels by increasinginventories and due to the consolidation of JPI. Without JPI, inventory daysincreased to 183 days. Net cash used for investing activities was $72.7 million in the year to 31December 2006 compared to $16.4 million in the same period in 2006. The mostsignificant investing activity in 2006 was purchases of property, plant andequipment amounting to $49.7 million, which relates primarily to theconstruction of the new cephalosporin plant in Portugal, expansions inproduction capacity in Jordan and the US, in addition to the completion of themanufacturing facility in Algeria. During the year the Group also made regularinvestments in upgrading and maintaining existing facilities in all other areas,as well as setting up a new quality control laboratory and research anddevelopment facility in Jordan. The second significant component of investing activities during 2006 was the$21.0 million paid for the acquisition of the 52.5% of JPI that we did notalready own. Net cash used in financing activities in the twelve months to 31 December 2006was $13.6 million, primarily representing a long term debt (including capitalleases) decrease of $8.9 million and dividends paid of $7.0 million. Cash balance and net cash position The Group's cash and cash equivalents decreased by $49.7 million in 2006 to$86.2 million, primarily as a result of capital expenditures, the acquisition ofJPI, debt repayments and dividends, partially offset by normal operatingactivities, which generated $35.2 million. The Group's net cash position at 31 December 2006 was $25.0 million, compared tonet cash of $86.9 million at 31 December 2005. Net cash is calculated as thetotal of investments in cash deposits, collateralised cash, and cash and cashequivalents, less bank overdrafts and the current and long term portion of loansand obligations under finance leases. Future outlook Group performance in 2007 is on track and we are pleased to be able to reiteratethe guidance we gave in January of this year and are updating this guidance toreflect the acquisition of Ribosepharm. Incorporating Ribosepharm, which will be consolidated from 1 January 2007, wenow expect to deliver Group sales growth in excess of 30%. Ribosepharm will alsoimpact positively on gross margin, which we now expect to be in line with 2006.We expect Ribosepharm's sales and marketing expenses as a percentage of sales,however, to be approximately 35% to 40% in 2007. We will continue to invest in R&D at a rate of 5% to 6% of sales and we nowexpect that our effective tax rate will improve slightly from the 26% we haveachieved in 2006. We expect our results in 2007 will continue to reflect the seasonality of ourbusiness, which will be further emphasised by the consolidation of JPI. Inaddition, we continue to expect that JPI will have a slightly dilutive effect onBranded operating margins in 2007. Consolidation of our position in the MENA region and expansion of our Injectablebusiness remain key strategic objectives and we will continue to look foropportunities to expand our operations both organically and throughacquisitions. In 2007, the intangible assets (excluding goodwill) acquired in the JPI andRibosepharm transactions will be amortised, in accordance with the accountingstandard IFRS 3 "Business combinations". As a result, we expect to incur anannual amortisation charge of approximately $0.3 million for JPI, based onassociated intangible assets that we have valued at $4.9 million. We willundergo a similar valuation exercise with respect to Ribosepharm's intangibleassets over the course of the year and expect to incur an associated annualamortisation charge. Generally, we expect future amortisation charges willincrease consistent with the acquisitive nature of the Group. Forward-looking statements Certain statements in this announcement are forward-looking statements whichhave been made by the Directors in good faith based on the information availableto them up to the time of their approval of this announcement. By their nature,forward-looking statements involve a number of risks, uncertainties orassumptions that could cause actual results or events to differ materially fromthose expressed or implied by the forward-looking statements, and should betreated with caution. These risks, uncertainties or assumptions could adverselyaffect the outcome and financial effects of the plans and events described inthis announcement. Forward-looking statements contained in this announcementregarding past trends or activities should not be taken as a representation thatsuch trends or activities will continue in the future. You should not placeundue reliance on forward-looking statements, which speak as only of the date ofthis the approval of this announcement. Except as required by law, the Company is under no obligation to update or keepcurrent the forward-looking statements contained in this announcement or tocorrect any inaccuracies which may become apparent in such forward-lookingstatements. Consolidated income statementfor the year ended 31 December 2006 Notes 2006 2005 USD '000 USD '000 -------- -------- Continuing operationsRevenue 2 317,022 262,215Cost of sales 2 (158,492) (126,424) -------- --------Gross profit 2 158,530 135,791 Sales and marketing costs (35,014) (27,367)General and administrative expenses (30,328) (22,610)Research and development costs (18,291) (16,507)Other operating expenses (net) (588) (1,548) -------- --------Total operating expenses (84,221) (68,032)Share of results of associates 938 1,449 -------- --------Operating profit 75,247 69,208 Flotation costs - (1,426)Finance income 5,258 1,562Finance costs (4,958) (5,211)Other income 49 276 -------- --------Profit before tax 75,596 64,409 Tax 3 (19,639) (19,452) -------- --------Profit for the year 55,957 44,957 ======== ========Attributable to:Minority interest 1,435 1,090Equity holders of the parent 54,522 43,867 -------- -------- 55,957 44,957 ======== ========Earnings per share (cents) Basic 5 32.6 30.0 ======== ========Diluted 5 31.0 28.3 ======== ======== Consolidated balance sheetat 31 December 2006 Notes 2006 2005 USD '000 USD '000 -------- --------Non-current assetsIntangible assets 23,940 7,735Property, plant and equipment 156,845 91,209Interest in associate - 7,552Due from associate - 2,304Deferred tax assets 5,719 1,506Available for sale investments 776 1,439Financial and other non-current assets 1,242 1,276 -------- -------- 188,522 113,021 -------- --------Current assetsInventories 6 83,720 58,017Income tax recoverable 500 1,320Trade and other receivables 7 121,846 82,634Collateralised cash 5,337 5,120Cash and cash equivalents 86,227 135,959Other current assets 2,204 1,891 -------- -------- 299,834 284,941 -------- --------Total assets 488,356 397,962 ======== ========Current liabilitiesBank overdrafts and loans 35,614 21,146Obligations under finance leases 1,216 797Trade and other payables 8 53,916 44,017Income tax provision 8,535 5,965Other provisions 2,577 1,233Other current liabilities 4,868 3,542 -------- -------- 106,726 76,700 -------- --------Net current assets 193,108 208,241 -------- --------Non-current liabilitiesLong-term financial debts 25,339 30,791Deferred income 356 416Obligations under finance leases 4,441 1,411Deferred tax liabilities 1,695 1,162 -------- -------- 31,831 33,780 -------- --------Total liabilities 138,557 110,480 ======== ========Net assets 349,799 287,482 ======== ======== Consolidated balance sheetat 31 December 2006 Notes 2006 2005 USD '000 USD '000 -------- --------EquityShare capital 9 29,712 29,457Share premium 111,431 110,074Reserves 203,924 144,350 -------- --------Equity attributable to equity holders of the parent 345,067 283,881 Minority interest 4,732 3,601 -------- --------Total equity 349,799 287,482 ======== ======== Consolidated statement of changes in equityfor the year ended 31 December 2006 Merger Retained Other Total Share Share Total equity reserve earnings reserves* reserves Capital premium attributable to equity shareholders of the parent -------- -------- -------- -------- -------- -------- -------- USD '000 USD '000 USD '000 USD '000 USD '000 USD '000 USD '000Balance at1 January 2005 33,920 82,140 1,348 117,408 25,269 (187) 142,490 Issue ofequity shares - - - - 4,188 120,725 124,913 Cost of equitysettled employee share scheme - 712 - 712 - - 712 Expenses ofissue ofequity shares - - - - - (10,810) (10,810) Sale oftreasuryshares - - - - - 346 346 Deferred taxarising on share options - 960 - 960 - - 960 Dividends onordinary shares - (17,800) - (17,800) - - (17,800) Profit forthe year - 43,867 - 43,867 - - 43,867 Cumulativeeffect ofchange in fairvalue ofavailablefor sale investments - 980 - 980 - - 980 Cumulativeeffect ofchange infair value offinancial derivatives - 164 - 164 - - 164 Currencytranslationloss - - (1,941) (1,941) - - (1,941) ------- ------- ------- ------- ------- ------- --------Balance at31 December2005 and 1 January2006 33,920 111,023 (593) 144,350 29,457 110,074 283,881 Issue ofequity shares - - - - 255 1,357 1,612 Cost of equitysettled employee share scheme - 879 - 879 - - 879 Deferredtax arising onshare options - 2,352 - 2,352 - - 2,352 Dividendson ordinary shares - (6,509) - (6,509) - - (6,509) Profit forthe year - 54,522 - 54,522 - - 54,522 Cumulative effectof change in fairvalue of availablefor sale investments - (663) - (663) - - (663) Cumulativeeffect ofchange infair value offinancial derivatives - 27 - 27 - - 27 Revaluationreserve - - 4,807 4,807 - - 4,807 Currencytranslationgain - - 4,159 4,159 - - 4,159 ------- ------- ------- ------- ------- ------- --------Balance at31 December 2006 33,920 161,631 8,373 203,924 29,712 111,431 345,067 ======= ======= ======= ======= ======= ======= ======== * Other reserves comprise the revaluation reserve (see note 10) and thecumulative translation reserve. Notes 2006 2005 USD '000 USD '000 ------- ------- Net cash from operating activities 11 35,250 32,713 Investing activitiesPurchases of property, plant and equipment (49,725) (23,423)Proceeds from disposal of property, plant andequipment 453 873Purchase of intangible assets (2,715) (562)Investment in financial and other assets 34 (78)Investment in available for sale securities - (35)Reduction of cash deposits - 7,692Acquisition of subsidiary undertakings 10 (21,633) (825)Cash acquired on acquisition of subsidiary 860 4 ------- -------Net cash used in investing activities (72,726) (16,354) ------- -------Financing activitiesProceeds from the sale of treasury shares - 346Increase in collateralised cash (217) (5,120)Increase in long-term financial debts 495 25,583Repayment of long-term financial debts (12,881) (20,895)Increase/(decrease) in short-term borrowings 1,244 (15,659)Increase/(decrease) in obligations under financeleases 3,449 (3,109)Dividends paid (6,989) (17,800)Dividends paid to minority shareholders (294) (130)Proceeds from issue of new shares 1,612 124,913Costs of issue of new shares - (10,810) ------- -------Net cash (used in)/from financing activities (13,581) 77,319 ------- ------- Net (decrease)/increase in cash and cash equivalents (51,057) 93,678 Cash and cash equivalents at beginning of year 135,959 41,415 Foreign exchange translation 1,325 866 ------- -------Cash and cash equivalents at end of year 86,227 135,959 ======= ======= Notes to the consolidated financial information 1. Basis of preparation Basis of accounting The basis of preparation of this preliminary announcement is set out below. The financial information in this announcement, which was approved by the Boardof Directors on 21 March 2007, does not constitute the Company's statutoryaccounts for the years ended 31 December 2006 or 2005 but is derived from theseaccounts. Statutory accounts for 2005 have been delivered to the Register of Companies andthose for 2006 will be delivered following the Company's Annual General Meeting.The auditors have reported on these accounts; their reports were unqualified anddid not contain statements under S237 (2) or (3) of the Companies Act 1985. The Group's principal accouting policies are unchanged compared with the yearended 31 December 2005.The preliminary announcement has been prepared on aconsistent basis with the full consolidated financial statements which areprepared in accordance with International Financial Reporting Standards (IFRS)issued by the International Accounting Standards Board. The financial statementshave also been prepared in accordance with IFRSs adopted for use in the EuropeanUnion and therefore comply with Article 4 of the EU IAS Regulation. Thefinancial statements have been prepared under the historical cost convention,except for the revaluation to market of certain financial assets andliabilities. Notes to the consolidated financial information 2. Business and geographical segments For management purposes, the Group is currently organised into three operatingdivisions - Generic, Branded and Injectables. These divisions are the basis onwhich the Group reports its primary segment information. Segment information about these businesses is presented below.Year ended 31 December 2006 Corporate and Group Generic Branded Injectables other USD '000 USD '000 USD '000 USD '000 USD '000 -------- -------- -------- -------- -------- Revenue 113,674 130,114 67,570 5,664 317,022Cost of sales (53,911) (60,642) (39,225) (4,714) (158,492) -------- -------- -------- -------- --------Gross profit 59,763 69,472 28,345 950 158,530 -------- -------- -------- -------- -------- ResultSegment result 36,011 39,379 13,360 (1,200) 87,550 ======== ======== ======== ======== Unallocatedcorporateexpenses - - - - (13,241) Share ofresults ofassociates - 938 - - 938 ======== ======== ======== ======== -------- Operatingprofit 75,247 Finance income 5,258Finance costs (4,958)Other income 49 --------Profit beforetax 75,596Tax (19,639) --------Profit for theyear 55,957 ========Attributable to:Minorityinterest 1,435Equity holdersof the parent 54,522 -------- 55,957 ======== Notes to the consolidated financial information 2. Business and geographical segments (continued) Year ended31 December 2005 Corporate and Generic Branded Injectables other Group USD '000 USD '000 USD '000 USD '000 USD '000 -------- -------- -------- -------- -------- Revenue 115,208 93,012 49,303 4,692 262,215Cost of sales (52,861) (39,297) (30,883) (3,383) (126,424) -------- -------- -------- -------- --------Gross profit 62,347 53,715 18,420 1,309 135,791 -------- -------- -------- -------- -------- ResultSegment result 38,765 28,764 8,486 (27) 75,988 ======== ======== ======== ======== Unallocatedcorporateexpenses - - - - (8,229) Share ofresults ofassociates - 1,449 - - 1,449 ======== ======== ======== ======== -------- Operatingprofit 69,208Flotation costs (1,426)Finance income 1,562Finance costs (5,211)Other income 276 -------- Profit beforetax 64,409Tax (19,452) --------Profit for theyear 44,957 ======== Attributable to:Minorityinterest 1,090Equity holdersof the parent 43,867 -------- 44,957 ======== Notes to the consolidated financial information 2. Business and geographical segments (continued) The following table provides an analysis of the Group's sales by geographicalmarket, irrespective of the origin of the goods/services: Sales revenue by geographical market for the years ended 31 December ---------------------------------- 2006 2005 USD '000 USD '000 ------- ------- United States 129,778 130,454Europe and Rest of the World 29,543 20,478Middle East and North Africa 157,701 111,283 ------- ------- 317,022 262,215 ======= ======= 3. Tax For the years ended 31 December 2006 2005 USD '000 USD '000 ------ ------- Current tax:UK current tax 26,982 110Double tax relief (26,840) -Foreign tax 23,093 19,596Prior year adjustments (500) -Deferred tax (3,096) (254) ------- ------- 19,639 19,452 ======= ======= Notes to the consolidated financial information 4. Dividends 2006 2005 USD '000 USD '000 -------- --------Amounts recognised as distributions to equity holders inthe period:Final dividend for the year ended 31 December 2005 of0.89 cents (2004: 5.0 cents) per share 1,489 7,120Interim dividend for the year ended 31 December 2006 of3.0 cents (2005: 7.5* cents) per share 5,020 10,680 -------- -------- 6,509 17,800 ======== ========Proposed final dividend for the year ended 31 December2006 of 4.0 cents per share (2005: 0.89 cents per share) 6,727 1,500 ======== ======== * The dividends declared in 2005 include those dividends declared prior to theIPO. Notes to the consolidated financial information 5. Earnings per share The calculation of the basic and diluted earnings per share is based on thefollowing data: 2006 2005 USD '000 USD '000 -------- --------Earnings for the purposesof basic and dilutedearnings per share beingnet profit attributable toequity holders of theparent 54,522 43,867 ======== ======== Number Number -------- --------Number of shares '000 '000Weighted average number ofordinary shares for thepurposes of basic earningsper share 167,279 146,454 Effect of dilutive potential ordinary shares:Share options 8,638 8,402 -------- --------Weighted average number ofordinary shares for thepurposes of dilutedearnings per share 175,917 154,856 ======== ======== 2006 2005 Earnings per Earnings per share Cents share Cent -------- -------- Basic 32.6 30.0 -------- -------- Diluted 31.0 28.3 -------- -------- 6. Inventories As at 31 December 2006 2005 USD '000 USD '000 -------- -------- Finished goods 21,684 14,868Work-in-progress 18,489 13,150Raw and packing materials 36,109 24,247Goods in transit 7,438 5,752 -------- -------- 83,720 58,017 ======== ======== Notes to the consolidated financial information 7. Trade and other receivables As at 31 December 2006 2005 USD '000 USD '000 -------- -------- Trade receivables 109,266 72,609Other prepayments 6,148 5,389Value added tax recoverable 5,701 3,889Interest receivable 427 217Employee advances 304 68Other receivables - 462 -------- -------- 121,846 82,634 ======== ======== 8. Trade and other payables As at 31 December 2006 2005 USD '000 USD '000 -------- -------- Trade payables 32,331 26,738Accrued expenses 15,000 11,705Employees' provident fund 2,106 2,301VAT and sales tax payables 2,281 1,425Dividends payable 361 841Social security withholdings 653 416Income tax withholdings 382 378Other payables 802 213 -------- -------- 53,916 44,017 ======== ======== Notes to the consolidated financial information 9. Share capital Authorised: 2006 2005 USD '000 USD '000 -------- -------- 500,000,000 ordinary shares of 10p each 88,700 88,70049,998 non - voting, redeemable preference shares of £1each - 90 ======== ======== The Group redeemed the preference shares at par on 9 February 2006. Issued and fully paid -included in shareholders'equity: 2006 2005 ----------------- --------------- Number '000 USD '000 Number '000 USD '000 --------- ------- --------- ------- At 1 January 166,798 29,457 142,400 25,269Issued during theyear 1,366 255 24,398 4,188 --------- ------- --------- -------At 31 December 168,164 29,712 166,798 29,457 ========= ======= ========= ======= Notes to the consolidated financial information 10. Acquisition of subsidiary On 11 September 2006, the Group acquired the remaining 52.5 per cent of theissued share capital of JPI located in Saudi Arabia for cash consideration ofUSD 21,000,000. The JPI operations consist of manufacturing products for theBranded Generic segment which largely sells to customers in the GCC area. The net assets acquired in the transaction and the goodwill arising are set outbelow: Book value Fair value Fair value adjustments --------- ---------- --------- USD '000 USD '000 USD '000Net assets acquiredProduct relatedintangibles - 3,256 3,256Customer relationships - 4,946 4,946Property, plant andequipment 18,248 4,029 22,277Inventory 8,209 (74) 8,135Other current assets 2,258 - 2,258Accounts receivable, net 20,760 (342) 20,418Cash and cash equivalents 860 - 860Trade accounts payable (5,147) - (5,147)Income tax provision (96) - (96)Bank overdrafts and loans (13,223) - (13,223)Provision for end ofservice indemnity (982) - (982)Other current liabilities (3,345) - (3,345)Long-term financial debts (6,934) - (6,934)Due to sister companies (3,200) - (3,200)Deferred tax liability - (1,695) (1,695) --------- ---------- ---------Net assets acquired(100%) 17,408 10,120 27,528 --------- ---------- ---------Net assets acquired(52.5%) 9,139 5,313 14,452 --------- ---------- ---------Goodwill 6,727Total consideration 21,179 =========Satisfied by :Cash 21,000Directly attributablecosts 179 --------- 21,179 =========Cash consideration 21,000Cash and cashequivalents acquired (860) ---------Net cash outflow arisingon acquisition 20,140 ========= Notes to the consolidated financial information 10. Acquisition of subsidiary - continued Directly attributable acquisition costs include legal and accounting costsincurred in the preparation of the acquisition contracts and in performing duediligence activities. The Group placed significant emphasis on the value of property, plant andequipment in making the decision to acquire JPI. The property, plant andequipment of JPI complement the Group's Branded business. The revenue and net profit of JPI from the date of acquisition that are includedin the Group's income statement for the period amounted to USD 11,737,000 and1,918,000 respectively. If the acquisition of JPI had been completed on the first day of the financialyear, Group revenues for the year would have been USD 338,948,000 and theGroup's profit attributable to equity holders of the parent would have been USD55,828,000. In accordance with IFRS 3 "Business Combinations" the company has consolidated100% of JPI at fair value, and the fair value adjustment of USD 4,807,000arising on consolidation that relates to the previously held 47.5% share of JPIhas been reflected as a revaluation reserve in equity. This reserve will betransferred to retained earnings to offset the amortisation charge arising onthe total tangible and intangible assets over their useful economic lives. Notes to the consolidated financial information 11. Net cash from operating activities 2006 2005 USD '000 USD '000 -------- ------- Profit before tax and minority interest 75,596 64,409Adjustments for:Depreciation, amortisation andimpairment of:Property, plant and equipment 12,468 8,909Intangible assets 1,329 1,416Results from associated companies (938) (1,449)Losses on disposal of property, plant and equipment 59 440Movement on provisions 362 152Deferred income (59) (174)Cumulative effect of change in fair value of 27 164derivativesShare option charge 879 713Finance income (5,258) (1,562)Interest and bank charges 4,958 5,211 -------- -------Cash flow before working capital 89,423 78,229Change in trade and other receivables (17,059) (20,544)Change in due from associate / related party (896) (691)Change in other current assets (290) 219Change in inventories (17,565) (13,306)Change in trade and other payables 610 14,297Change in other current liabilities 138 (4,029) -------- -------Cash generated by operations 54,361 54,175 Income tax paid (19,397) (17,800)Finance income 5,258 1,562Interest paid (4,972) (5,224) -------- -------Net cash generated from operating activities 35,250 32,713 ======== ======= Notes to the consolidated financial information 12. Subsequent events In January 2007, the Group announced the acquisition of Ribosepharm GmbH forconsideration of USD 45 million. The book value of tangible assets acquired wasUSD 0.6 million. The Group is currently in the process of determining the fairvalue adjustments and hence the goodwill and intangibles arising on theacquisition. Due to the timing of this transaction, it has been impractical tocalculate and disclose the amounts of goodwill and intangible assets arising. On 9 February 2007, the Group completed the acquisition of the remaining sharecapital of 51% Hikma Pharma Co, a distribution business in Tunisia for USD3,800. At this stage it is not practical to determine the goodwill arising onthis acquistion. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Hikma Pharmaceuticals