29th Mar 2006 07:03
Hikma Pharmaceuticals Plc29 March 2006 Hikma Pharmaceuticals PLC Preliminary results announcement for the year ended 31 December 2005 Hikma Pharmaceuticals PLC, a multinational pharmaceutical group focused ondeveloping, manufacturing and marketing a broad range of generic and in-licensedpharmaceutical products, today reports its preliminary results for the yearended 31 December 2005. Revenue up 23.5% to $262.2 million Gross profit up 25.2% to $135.8 million R&D costs up 70.7% to $16.5 million Operating profit up 10.3% to $69.2 million Profit before tax up 9.1% to $64.4 million Profit attributable to shareholders up 17.1% to $43.9 million Diluted earnings per share up 14.1% to 28.3 cents • Achieved revenue growth for the Group of 23.5% with particularly strong performance in the Branded and Injectable businesses • Maintained gross margins for the Group at 51.8% • Increased investment in R&D by 70.7% to 6.3% of revenue • Delivered 17.1% growth in profit attributable to shareholders • Listed on London Stock Exchange with a market capitalisation at year end of £675 million ($1.2 billion) • Expanded into the lyophilised segment of the injectables market • Received FDA approval of the manufacturing facilities of our associate in Saudi Arabia • Launched 10 new products(1), received 98 regulatory approvals and submitted 73 regulatory filings during the year (1) New pharmaceutical compounds that are being launched for the first time bythe Group or, for the first time, within another business segment Commenting on the results, Samih Darwazah, Chairman and Chief Executive ofHikma, said: "I am pleased to report that 2005 was an extremely successful year for HikmaPharmaceuticals PLC. We have achieved a strong set of financial results drivenby new product launches, better product targeting and enhanced sales andmarketing capabilities, combined with a continued focus on API sourcing,manufacturing and operational efficiencies. Our performance in 2005 reinforcesour track record of delivering growth and demonstrates the underlying strengthof our diverse business model." Enquiries: Hikma Pharmaceuticals PLCBassam Kanaan, Chief Financial Officer On the day Tel: 07776 477 050Susan Ringdal, Investor Relations Director Thereafter Tel: 020 7479 4893 Brunswick GroupJon Coles / Wendel Verbeek /Justine McIlroy / Alexandra Tweed Tel: 020 7404 5959 Hikma Pharmaceuticals PLC's presentation to analysts and investors will bewebcast live at 09:30 on 29 March 2006 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 OverviewI am pleased to report that 2005 was an extremely successful year for HikmaPharmaceuticals PLC. We have achieved a strong set of financial results drivenby new product launches, better product targeting and enhanced sales andmarketing capabilities, combined with a continued focus on API sourcing,manufacturing and operational efficiencies. Our performance in 2005 reinforcesour track record of delivering growth and demonstrates the underlying strengthof our diverse business model. On 1 November 2005 we successfully completed our initial public offering on theLondon Stock Exchange and on 19 December 2005 we joined the FTSE 250. Throughthe offer we raised gross proceeds of $124 million (£70.0 million) to be used torepay debt and fund capital investment projects across our core businesses. Asof 31 December 2005, our market capitalisation was $1.2 billion (£675 million).Through our listing we have enhanced our international profile, gained financialflexibility to grow our business both organically and through acquisition, andenabled global investors to support our development. Financial resultsThe Group performed well across all businesses in 2005, achieving revenue of$262.2 million, up 23.5% from 2004. Gross margin for the Group remained stableat 51.8%. Operating profit grew by 10.3% to $69.2 million, while operatingmargins decreased to 26.4%, compared to 29.5% in 2004, primarily as a result ofincreased investment in R&D and sales and marketing. The Group's profit for theyear increased by 17.1% to $43.9 million and diluted earnings per share grew by14.1% to 28.3 cents. Business highlightsWe ended 2005 with a total of 140 products in our portfolio in 302 dosagestrengths and forms, including the 10 products launched during the year and 25under-licence products.(2) During 2005 we were granted 98 regulatory approvals.In addition, we submitted a total of 73 regulatory filings, including 37 newproduct applications.(3) As of 31 December 2005, we had a total of 88 pendingapprovals and 90 products under development across our three main businesssegments - Generic, Branded and Injectable Pharmaceuticals. In our Branded and Injectable Pharmaceuticals businesses, we put considerableeffort into developing our sales and marketing capabilities, especially in theMENA Region. We achieved market share gains in Saudi Arabia and maintained ourmarket leading position in Jordan. We also expanded into the technicallychallenging lyophilised segment of the injectables market with the acquisitionof the Italian manufacturing business, IBPP, in March 2005. In December 2005,our Generic Pharmaceuticals business successfully renewed its sales contractwith the Department of Veterans Affairs, an agency of the government of theUnited States, for the supply of Lisinopril. (2) Launches include only new pharmacuetical compunds that are being launchedfor the first time by the Group or, for the first time within another businesssegment(3) Filings include filings for new products, which include pharmaceuticalcompounds not yet launched by the Group and existing compounds being introducedinto new regions and countries, and line extensions Board appointmentsIn anticipation of our IPO, three non-executive Directors were appointed to theBoard in October. In addition, Ali Al-Husry joined the Board as a Non-ExecutiveDirector, having served as a director of Hikma Pharma Limited and other Groupcompanies since 1991. Ali is Chairman and CEO of Export & Finance Bank inJordan, as well as being a director of a number of other organisations. Sir David Rowe-Ham joined the Board as Senior Independent Non-Executive Directorand took up the position of Chairman of the Nomination Committee. A CharteredAccountant, Sir David is Chairman of Olayan Europe Ltd., BNP Paribas South AsiaInvestment Co Ltd and Coral Products PLC. Michael Ashton joined the Board as a Non-Executive Director and took up theposition of Chairman of the Remuneration Committee. Michael has been the chiefexecutive of a number of pharmaceutical companies and has over 32 years ofexperience in the pharmaceutical industry. Breffni Byrne also joined the Board as a Non-Executive Director, taking up theposition of Chairman of the Audit Committee. Also a Chartered Accountant,Breffni is Chairman of NCB Stockbrokers and director of Irish Life and Permanentplc, Coillte Teoranta (the Irish state forestry company), Adsteam Europe Limitedand other companies. DividendThe Board has recommended a pro rata final dividend for the period fromflotation to 31 December 2005 of 0.89 cents per share (approximately 0.5 penceper share) equivalent to approximately 5.34 cents on a full year basis. Theproposed final dividend will be paid on 30 May 2006 to shareholders on theregister on 28 April 2006, subject to approval at the Annual General Meeting. Developments in 2006Early in 2006, we announced FDA approval of the manufacturing facilities of JPI,our associate company in Saudi Arabia, for the manufacture of oral cephalosporinproducts for sale in the US market. The construction of our new cephalosporinplant in Portugal is well underway and on track to begin production in the firsthalf of 2007. The construction of our new penicillin plant in Jordan and theexpansion of our lyophilised injectable plant in Italy are scheduled forcompletion in 2007. All three projects, as well as the approval of the JPIfacility, will significantly increase our manufacturing capacity and allow us tomeet the growing demand across our core businesses. In 2006, we are planning to expand the penetration of our injectable productsacross the United States, Europe and the MENA Region, through new productlaunches and greater investment in sales and marketing, including recent seniorsales and marketing appointments. Our sales in Europe will be further enhancedby agreements signed in the beginning of 2006 with Hospira, Inc., a globalspecialty pharmaceutical and medication delivery company for the supply anddistribution of injectable products in European markets. In early 2006, the Algerian Ministry of Labour and Social Security Affairsannounced changes to its reimbursement system, including the introduction ofreference pricing for a number of reimbursable products. This new legislation isexpected to impact current pricing of some, but not all, of our products sold inAlgeria. We expect to be able to minimise the effect of these price declines byintroducing new products and by increasing the sales volume, through greaterpromotion of those Hikma products that are on the reference price list but thathave potential for sales growth. OutlookOur listing on the London Stock Exchange marks the beginning of an exciting newphase in Hikma's development. In 2006, we will continue to improve the breadthand quality of our product range and delivery of operational efficiencies withcontinued investment in research and development, sales and marketing and humanresources. Prospects for the Group's overall business performance are positive. We expectto continue our trend of strong revenue growth, especially in our Branded andInjectable businesses, through a focus on existing products, the launch of newproducts and expansion into new markets. This will be driven by the strength ofour sales and marketing teams. 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. We are confident that the strength and diversity or our business will enable usto continue to deliver organic growth at the Group level, and we will continueto look for new opportunities to grow through acquisition. Samih DarwazahChairman and Chief Executive Officer Business and financial review Year ended 31 December Hikma's key performance indicators 2005 2004 Change______________________________________________________________________________Revenue growth 23.5% 14.1% +9.5% Gross margin 51.8% 51.1% +0.7% Operating margin 26.4% 29.5% -3.1% R&D costs as a percentage of revenue 6.3% 4.6% +1.7% Profit attributable to shareholders ($ million) 43.9 37.5 +17.1% Group performanceRevenue for the Group increased by 23.5% to $262.2 million, compared to $212.4million in the prior year period. The increase was primarily due to strongincreases in revenue in both the Injectable and Branded Pharmaceuticalsbusinesses, as well as a solid performance from our Generic Pharmaceuticalsbusiness. In 2005, 43.9% of revenue was generated by our Generic Pharmaceuticals business,35.5% of revenue was generated by our Branded Pharmaceuticals business and 18.8%by our Injectables business. 49.8% of revenue was generated in the UnitedStates, while 42.4% of revenue was generated in the MENA Region and 7.8% inEurope. The Group's cost of sales increased by 21.6% to $126.4 million, compared to$103.9 million for the prior year period. Cost of sales represented 48.2% ofGroup revenue, compared to 48.9% for the prior year period. The Group's grossprofit increased by 25.2% to $135.8 million, compared to $108.4 million in theprior year period. Group gross margins for 2005 were 51.8% of revenue, comparedto 51.1% in the prior year period. On a segmental basis, gross margins improvedin the Branded and Injectable Pharmaceuticals businesses, and remained stable inthe Generic Pharmaceuticals business despite margin pressure in the second halfof the year. Group operating expenses grew in 2005 by 48.9% to $70.0 million, compared to$47.1 million for the prior year period. Sales and marketing expenses increasedby 38.7% to $27.4 million, due primarily to a significant increase in sales andmarketing headcount in the MENA region for both the Branded and InjectablePharmaceuticals businesses. Sales and marketing expenses represented 10.4% ofGroup revenue in 2005, compared to 9.3% in the prior year period. The Group's general and administrative expenses increased by 49.8% to $22.6million, compared to $15.1 million in the prior year period. The change can beattributed to an increase in corporate expenses, which increased by $1.7 millionto $8.2 million as we strengthened corporate functions in preparation for ourpublic listing. In addition, we saw an increase in general and administrativeexpenses in our Generic Pharmaceuticals business, especially with respect toconsulting and IT costs related to the implementation of SAP. The increase alsoreflects the consolidation of general and administrative expenses of IBPP inItaly, the subsidiary acquired during the first half of 2005. General andadministrative expenses represented 8.6% of Group revenue in 2005, compared to7.1% in the prior year period. Investment in R&D for the Group increased by 70.7% to $16.5 million, compared to$9.7 million in the prior year period. This increase can be attributed primarilyto the Generic Pharmaceuticals business, where we saw an increase in the numberof ANDA filings and associated bio-equivalency costs and the hiring of newscientists and technicians for the R&D centre in Jordan. Total investment in R&Drepresented 6.3% of Group revenue in 2005, compared to 4.6% in the prior yearperiod. Other operating expenses increased by $1.0 million to $3.6 million, compared to$2.6 million in the prior year period, primarily as a result of the cost ofsetting up the new manufacturing facilities in Algeria that commenced operationsearly in 2006. Other operating income increased by $1.4 million to $2.0 million, compared to$0.6 million in the prior year period, consisting mainly of management fees fromJPI. Share of results of associates, now included in operating profit as they areconsidered to be core to Group's activities, were $1.4 million in 2005, comparedto $0.7 million in the prior year period. Operating profit for the Group increased by 10.3% to $69.2 million, compared to$62.7 million in the prior year period. Group operating margin declined 3.1% to26.4% in 2005, compared to 29.5% of revenue in the prior year period. Research & DevelopmentIn the year to 31 December 2005, Hikma submitted 73 regulatory filings,including 19 ANDAs. These included filings for new products, which includepharmaceutical compounds not yet launched by the Company and existing compoundsbeing introduced into new regions and countries, and line extensions (theregistration of new dosage strengths or forms of existing products). Filings in 2005 New product filings in 2005 Pending approvals as Pending approvals of new of 31 December 2005 products as of 31 December 2005 Generic PharmaceuticalsUnited States 14 10 21 13BrandedPharmaceuticalsMENA Region 16 5 8 2Europe 4 1 9 1 _______ ________ _________ _______ 20 6 17 3 InjectablePharmaceuticalsUnited States 5 5 16 13MENA Region 23 11 23 11Europe 11 5 11 5 _______ ________ _________ _______ 39 21 50 29 ============= =========== ============ ============= 73 37 88 45 We estimate that the currently marketed equivalent products of the 45 newproducts covered by the Group's pending approvals had sales of approximately$9.0 billion in the year ended 31 December 2005 in the markets covered by thepending approvals. At 31 December 2005, we had a total of 90 products under development, themajority of which should receive several marketing authorisations, includingseparate marketing authorisations in differing strengths and/or product formsbetween 2006 and 2009. Generic PharmaceuticalsGeneric Pharmaceuticals remains our largest business in terms of revenue,contributing 43.9 % of total Group revenue in 2005, compared to 50.0% in theprior year period. As in 2004, all Generic Pharmaceutical revenues weregenerated in the United States. Revenue in our Generic Pharmaceuticals business increased by 8.5% to $115.2million, compared to $106.2 million in the prior year period. The change wasprimarily due to an increase in sales volumes offset by price declines. Duringthe year, 2 new products were launched. Revenue from the Generic Pharmaceuticals business top-ten sellers represented68.6% of Generic Pharmaceutical revenue in 2005. Leading products includedLisinopril, Folic acid and Lithium carbonate (SR). In December 2005 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 3rd OptionYear for the contract with a contract period between 21 December 2005 and 20December 2006. All other terms and conditions of the contract, includingpricing, remain unchanged. Lisinopril accounted for 33.4% of GenericPharmaceuticals revenue and 14.7% of Group revenue in 2005. Cost of sales of the Generic Pharmaceuticals business increased by 8.4% to $52.9million, compared to $48.8 million in the prior year period. Cost of sales ofthe Generic Pharmaceuticals business represented 45.9% of the Generic business'stotal revenue in 2005, unchanged from the prior year period. Gross profit of the Generic Pharmaceuticals business increased by 8.3% to $62.3million, compared to $57.5 million in the prior year period. The GenericPharmaceuticals business's gross margin remained stable at 54.1%, despite asignificant reduction in gross margin in the second half of the year resultingfrom increased pricing pressure. Generic Pharmaceuticals operating profit decreased by 5.6% to $38.8 million.Operating margins in the Generic Pharmaceuticals business decreased to 33.6% ofrevenue, compared to 38.6% in the prior year period. The decrease in operatingmargin can be attributed to an increase in investment in R&D as a result ofincreased spending on bioequivalence studies in both the United States andJordan as well as an increase in general and administrative expenses related topersonnel, consulting and IT-related activities. Branded PharmaceuticalsThe 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 Pharmaceuticals business manufactures brandedgeneric pharmaceutical products for sale across the MENA Region and,increasingly, Europe. Revenue in our Branded Pharmaceuticals business increased by 25.7% to $93.0million, compared to $74.0 million in the prior year period. The increase wasdue primarily to an increased focus on our strongest products and to thestrengthening of our sales and marketing efforts across the region. In line with our strategic objectives for the Branded Pharmaceuticals business,we launched 5 new products(4) in 2005. We also restructured our sales andmarketing capabilities across the MENA Region, creating separate sales teams forBranded and Injectable products. We ended the year with 280 Branded sales andmarketing representatives across the MENA Region. (4) New pharmaceutical compounds that are being launched for the first time within the business segment Algeria, Saudi Arabia and Jordan remained the Branded Pharmaceuticals business'sthree key markets in 2005. In 2005 our market share in Algeria increasedslightly to 3.2%, compared to 3.0% in the prior year period, maintaining ourposition as the seventh largest pharmaceutical manufacturer and second largestgeneric pharmaceutical manufacturer by value in the Algerian market. During theyear we increased the number of medical reps and launched a number of newproducts into the market. The completion of our manufacturing facilities inAlgeria at the end of 2005, and the subsequent approval of the facilities by theAlgerian Ministry of Health in early 2006, will enable us to produce productslocally for the Algerian market. Our new local presence should also help toexpedite the registration of new products for this market. In early 2006, the Algerian Ministry of Labour and Social Security Affairsannounced changes to its reimbursement system, including the introduction ofreference pricing for a number of reimbursable products. This new legislation isexpected to impact current pricing of some, but not all, of our products sold inAlgeria. We expect to be able to minimize the effect of these price declines byintroducing new products and by increasing the sales volume, through greaterpromotion of those Hikma products that are on the reference price list but thathave potential for sales growth. A strong performance in Saudi Arabia was driven, in part, by the launch of newproducts and to a restructuring of the sales force, which included managementchanges and increased specialization by the medical reps. In Saudi Arabia, ourcombined market share in value terms, including that of our associate businessJPI, increased to 3.5% in 2005, compared to 3.1% in the prior year period,making us the sixth largest player in the Saudi Arabian market. In Jordan we gave particular focus to our key products and better producttargeting. As in Algeria and Saudi Arabia, we also launched new products in theJordanian market. We maintained our position as market leader for the full year,with a market share of 6.4% in value terms. In line with our strategy of expanding our geographic reach in the MENA Region,we established our own distribution company in Lebanon in 2005, which willenable us to register more products and give us more control of our sales anddistribution operations in this growing market. Revenue from the Branded Pharmaceuticals business top-ten sellers represented80.2% of Branded Pharmaceutical revenue in 2005. Leading products includedAmoclan, Prograf and Suprax. Cost of sales of the Branded Pharmaceuticals business increased by 14.5% to$39.3 million, compared to $34.3 million in the prior year period. Cost of salesof the Branded Pharmaceuticals business represented 42.3% of the business'stotal revenue, compared to 46.4% in the prior year period. Gross profit of theBranded Pharmaceuticals business increased by 35.3% to $53.7 million, comparedto $39.7 million in the prior year period. The Branded Pharmaceuticalsbusiness's gross margin increased to 57.8%, compared to 53.6% in the prior yearperiod. This improvement in gross profit margin reflects efficiency improvementsin our production planning process and increased economies of scale as well asan improvement in product and geographical sales mix. Branded Pharmaceuticals' operating profit increased by 28.2% in 2005, to $28.8million. Operating margins in the Branded Pharmaceuticals business were 30.9% in2005, up from 30.3% in 2004. Injectable PharmaceuticalsOur Injectable Pharmaceuticals business manufactures injectable genericpharmaceutical products in powder, liquid and lyophilised forms for sale acrossthe MENA Region, the United States and Europe. Injectable Pharmaceuticals is ourfastest growing and most geographically diverse business, contributing 18.8% oftotal Group revenue in 2005, compared to 13.6% in the prior year period. Revenue in our Injectable Pharmaceuticals business increased by 70.8% to $49.3million, compared to $28.9 million in the prior year period. The increase wasdue primarily to strong performances in all key geographic regions, driven byenhanced sales and marketing efforts and new product launches. Revenues were particularly strong in the United States, where we launched a newform of cefazoline in the first quarter of 2005 and secured sales contracts withthree new customers. In the MENA Region, a strong performance was driven by thedevelopment of a dedicated sales force of 51 sales representatives and theintroduction of new products. In Europe, the acquisition of IBPP in Italy andour newly established operations in Germany, which included four sales andmarketing employees at year-end, helped to boost Injectable Pharmaceuticalssales. Revenue from the Injectable Pharmaceuticals business's top-ten sellersrepresented 69.0% of Injectable Pharmaceuticals revenue in 2005, compared to86.9% in the prior year period. Cephalosporins continue to be the segment's topsellers, while leading liquid injectables included Diclofenac sodium,Ciprofloxacin and Atracurium. We also successfully launched our Injectableportfolio's first pre-filled syringe product, HIBOR, an in-licensed lowmolecular weight heparin for the MENA region. Cost of sales of the Injectable Pharmaceuticals business increased by 61.8% to$30.9 million, compared to $19.1 million in the prior year period. Cost of salesof the Injectable Pharmaceuticals business represented 62.6% of the business'stotal revenue compared to 66.3% in the prior year period. Gross profit of theInjectable Pharmaceuticals business increased by 89.7% to $18.4 million,compared to $9.7 million in the prior year period. The InjectablePharmaceuticals business's gross margin increased to 37.4%, compared to 33.7% inthe prior year period. The increase in gross profit margin reflects theincreased scalability of the business as we achieved higher utilisation ratesand as fixed manufacturing expenses decreased as a percentage of sales. Injectable Pharmaceuticals' operating profit increased by 107.3% to $8.5million, compared to $4.1 million in the prior year period, despite increasedspending on R&D and sales and marketing. Injectable operating margins improvedto 17.2% in 2005, up from 14.1% in the prior year period. The increasedscalability of the business also explains this improvement operating margin. During the year, we focused on developing our sales and marketing capabilitiesacross all geographies and ended the year with 51 sales reps in the MENA Region,and 9 in Europe - 5 in Portugal and 4 in Germany. Since the beginning of 2006,we have added four additional sales and marketing employees in Europe - twosales reps in Germany, a sales director for the Benelux and a sales rep inItaly. We have also enhanced our injectable presence in the US through theappointment of a General Manager and a VP Sales & Marketing. Also in 2005 construction began on our new Cephalosporin plant in Portugal,which will host three new production lines, warehouses and laboratoryfacilities. The plant is on track to begin production in the first half of 2007. Other businessesOther businesses, which include primarily Arab Medical Containers, amanufacturer of plastic specialised packaging, and International PharmaceuticalsResearch Centre (IPRC), which conducts bio-equivalency studies, had aggregaterevenue in 2005 of $4.7 million, or 1.8% of total Group revenue. Financial performance Flotation costsFlotation costs related to our initial public offering recognised in the incomestatement were $1.4 million in 2005, compared to $0.4 million in the prior yearperiod. The direct costs of the issue of new shares of $10.8 million have beencharged to the share premium account. Finance incomeThe Group's financing income includes interest income and net foreign exchangegains from non trading activities. Financing income increased by $1.3 million to$1.6 million in 2005, compared to $0.3 million the prior year period. Theincrease was due primarily to interest earned on proceeds generated from theGroup's IPO and interest generated from cash deposits in the United States. Finance costsFinancing costs increased by $1.4 million to $5.2 million, compared to $3.8million in the prior year period. This increase relates primarily to borrowingsfor working capital purposes in the Branded and Injectable Pharmaceuticals'segments. Profit before taxProfit before taxes and minority interest for the Group increased by $5.4million, or 9.1%, from $59.0 million in 2004 to $64.4 million in 2005. TaxThe Group had tax expenses of $19.5 million in 2005. The effective tax rate was30.2%, a year on year decrease of 5.1 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 to product sourcing from subsidiaries in lower taxcountries. Minority interestHikma's minority interest increased from $0.7 million in 2004 to $1.1 million in2005. Profit for the yearThe Group's profit for the year attributable to equity holders of the parentgrew by 17.1% to $43.9 million for the year ended 31 December 2005. Earnings per shareDiluted earnings per share for the year to 31 December 2005 were 28.3 cents, up14.1% from 24.8 cents in 2004. DividendThe Board has recommended a pro rata final dividend for the period from float to31 December 2005 of 0.89 cents per share (approximately 0.5 pence) equivalent toapproximately 5.34 cents on a full year basis. The proposed final dividend willbe paid on 30 May 2006 to shareholders on the register on 28 April 2006, subjectto approval at the Annual General Meeting. Cash flow and investmentNet cash inflow from operating activities was $32.7 million in the year to 31December 2005 compared to $32.8 million in the year to 31 December 2004. Networking capital increased by $24.1 million, primarily due to the relativelyhigher portion of sales generated in the MENA Region, where collection periodsare generally higher, as well as to higher receivables at West-ward. Inventorydays increased from 156 days to 168 days primarily due to higher levels of rawmaterials. Net cash used for investing activities was $16.4 million in the year to 31December 2005 compared to $25.4 million in the same period in 2004. The mostsignificant investing activities in 2005 were purchases of property, plant andequipment amounting to $23.4 million, offset by the realisation of investmentsin cash deposits in the amount of $7.7 million. Total cash paid for the purchase of businesses was $0.8 million. Thisexpenditure was mainly on the acquisition of IBPP in Italy. Net cash from financing activities in the twelve months to 31 December 2005 was$77.4 million compared to net cash used in financing activities of $5.4 millionin the year to 31 December 2004. Significant financing activities in 2005included $124.9 million generated from the issuance of new shares. Capital expenditureCapital expenditures were driven primarily by investment in our new facilitiesin Algeria, the new cephalosporin plant in Portugal and the construction of anew quality control laboratory and a research and development facility inJordan. During the year the Group also made regular investments in upgrading andmaintaining existing facilities. Balance sheetThe Group's cash balance increased by $94.5 million in 2005 to $135.9 million,as a direct result of the Group's initial public offering of new shares as wellas normal operating activities, which generated $124.9 million and $32.7million, respectively. This was partially offset by capital expenditures, debtrepayments and dividends. The Group's net cash position at 31 December 2005 was $86.9 million, compared toa net debt position of $13.9 million at 31 December 2004. Net cash/debt iscalculated as the total of investments in cash deposits, collateralised cash andcash and cash equivalents less bank overdrafts and the current and long termportion of loans and obligations under finance leases. Share priceThe Group's share price closed at 404.75 pence on 30 December 2005, an increaseof 39.6% since listing on the London Stock Exchange on 1 November 2005 at anoffer price of 290 pence. The Group's total shareholder return for this periodwas 39.6%, compared to 14.4% for the FTSE 250 (30.2% for the full year) and 4.5%for the FTSE 350 pharmaceuticals sector (32.4% for the full year), with thestock outperforming both indices over the period. During this period the share'sclosing price ranged from a low of 277 pence in November 2005 to a high of404.75 pence in December 2005. Future outlookWe believe the progress the Group has made in 2005 leaves us well-positioned tocontinue our track record of strong growth. We have made significant investmentin both R&D and sales and marketing, and through our capital investmentprogramme, we have expanded our manufacturing facilities. With 88 pendingapprovals and 90 products under development, our pipeline is stronger than ever. We expect both our Branded and Injectable Pharmaceutical businesses to deliverstrong sales growth in 2006, through a focus on key products, the launch of newproducts and expansion into new markets. Gross margins in our Branded businessare expected to remain stable, and we see scope for improvement in gross marginsin our Injectable business, through higher utilisation rates and lower fixedmanufacturing expenses as a percentage of sales. We expect the pricing environment in the United States to remain competitive.However, we will work diligently to minimise the effects of this pricingpressure on our Generic business by introducing new products and retaining ourstrategic focus on reducing raw material costs. We are confident that the strength and diversity of our business will enable usto continue to deliver strong organic growth at the Group level. Furthermore,consolidation of our position in the MENA Region remains a key strategicobjective and we will continue to look for opportunities to expand ouroperations through acquisitions. Forward looking statementsCertain statements in this announcement are forward looking statements. By theirnature, 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. These risks,uncertainties or assumptions could adversely affect the outcome and financialeffects of the plans and events described herein. Forward-looking statementscontained in this announcement regarding past trends or activities should not betaken as a representation that such trends or activities will continue in thefuture. You should not place undue reliance on forward-looking statements, whichspeak only as of the date 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 STATEMENTYear ended 31 December 2005 Notes 2005 2004 USD 000's USD 000's (Restated see note 1) __________ ______________ ________________________ Continuing operationsRevenue 2 262,215 212,377Cost of sales 2 (126,424) (103,937) ______________ ________________________ Gross profit 2 135,791 108,440 Sales and marketing costs (27,367) (19,728)General and administrativeexpenses (22,610) (15,098)Research and developmentcosts (16,507) (9,672)Other operating expenses (3,556) (2,552)Other operating income 2,008 602Share of results ofassociates 1,449 732 ______________ ________________________Operating profit 69,208 62,724 Flotation costs 3 (1,426) (425)Finance income 1,562 326Finance costs (5,211) (3,825)Other income 276 224 ______________ ________________________Profit before tax 64,409 59,024 Tax 4 (19,452) (20,835) ______________ ________________________Profit for the year 44,957 38,189 ============== ========================Attributable to:Minority interest 1,090 731Equity holders of the 43,867 37,458parent ______________ ________________________ 44,957 38,189 ============== ========================Earnings per share (cents) Basic 30.0 26.3 ============== ========================Diluted 28.3 24.8 ============== ======================== During the year the Group carried out a corporate restructuring including theintroduction of a new holding company. The income statement has been preparedusing merger accounting and is presented on a pro forma basis as if the newholding company had been in existence throughout both the current and priorperiods. Further information is given in note 1. CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND 2005 2004EXPENSES USD 000's USD 000'sYear ended 31 December 2005 ___________ _________ Gains on revaluation of available-for-saleinvestments taken to equity 980 92 Gains on revaluation of fair valuederivatives taken to equity 164 168 Exchange (loss) / gain on translation offoreign operations (1,941) 1,158 ___________ _________Net income recognised directly in equity (797) 1,418 Profit for the year 44,957 38,189 ___________ _________Total recognised income and expense for theyear 44,160 39,607 =========== =========Attributable to:Equity holders of the parent 43,070 38,876Minority interests 1,090 731 ___________ _________ 44,160 39,607 =========== ========= CONSOLIDATED BALANCE SHEETYear ended 31 December 2005 2005 2004 USD 000's USD 000's ___________ __________Non-current assetsIntangible assets 7,735 5,033Property, plant and equipment 91,209 71,471Interest in associate 7,552 6,103Due from associate 2,304 1,613Deferred tax assets 1,506 171Available for sale investments 1,439 425Financial and other non-current assets 1,276 1,189 ___________ __________ 113,021 86,005 ___________ __________Current assetsInventories 58,017 44,365Income tax recoverable 1,320 1,908Trade and other receivables 87,466 63,732Investment in cash deposits - 7,692Collateralised cash 5,120 -Cash and cash equivalents 135,959 41,415Other current assets 1,891 1,364 ___________ __________ 289,773 160,476 ___________ __________Total assets 402,794 246,481 =========== ========== Current liabilitiesBank overdrafts and loans 21,146 35,108Obligations under finance leases 797 1,165Trade and other payables 48,849 29,812Income tax provision 5,965 4,646Other provisions 1,233 829Other current liabilities 3,542 1,672 ___________ __________ 81,532 73,232 ___________ __________Net current assets 208,241 87,244 ___________ __________ Non-current liabilitiesLong-term financial debts 30,791 24,291Deferred income 416 591Obligations under finance leases 1,411 2,448Deferred tax liabilities 1,162 744 ___________ __________ 33,780 28,074 ___________ __________Total liabilities 115,312 101,306 =========== ========== Net assets 287,482 145,175 =========== ========== Notes 2005 2004 USD 000's USD 000's ___________ ___________EquityShare capital 5 29,457 25,269Share premium 6 110,074 -Treasury shares - (187)Reserves 7 144,350 117,408 ___________ ___________Equity attributable to equity holdersof the parent 283,881 142,490 Minority interest 3,601 2,685 ___________ ___________Total equity 287,482 145,175 =========== ============ CONSOLIDATED CASH FLOW STATEMENT For the year ended 31 December 2005 Notes 2005 2004 USD 000's USD 000's ________ ___________ ___________ Net cash from operating activities 8 32,713 32,842 Investing activities Purchases of property, plant andequipment (23,423) (18,043)Proceeds from disposal of property,plant and equipment 873 66Purchase of intangible assets (562) (3,287)Investment in financial and otherassets (78) (643)Disposal of financial and other assets - 500Investment in available for salesecurities (35) (71)Reduction of /(Investment in) cashdeposits 7,692 (4,111)Acquisition of subsidiary (825) (690)Cash acquired on acquisition ofsubsidiary 4 880 ___________ ___________ Net cash used in investing activities (16,354) (25,399) ___________ ___________ Financing activitiesProceeds from the sale of treasuryshares 346 4,841Purchase of treasury shares - (4,835)Increase in collateralised cash (5,120) -Increase in long-term financial debts 25,583 -Repayment of long-term financial debts (20,895) (9,670)(Repayments) / increase in short-termborrowings (15,659) 6,990Net (repayments)/ increase inobligations under finance leases (3,109) 1,011Dividends paid (17,800) (3,766)Proceeds from issue of new shares 124,913 -Costs of issue of new shares (10,810) - ___________ ___________ Net cash from/(used in) financingactivities 77,449 (5,429) ___________ ___________ Net increase in cash and cashequivalents 93,808 2,014 Cash and cash equivalents at beginningof year 41,415 39,301 Effect of foreign exchange ratechanges 736 100 ___________ ___________ Cash and cash equivalents at end ofyear 135,959 41,415 ============ =========== Notes to the preliminary announcement for the year ended 31 December 2005 1. Basis of preparation I. Basis of accountingHikma Pharmaceuticals PLC's consolidated financial statements are prepared inaccordance with International Financial Reporting Standards (IFRSs) issued bythe International Accounting Standards Board. The financial statements have alsobeen prepared in accordance with IFRSs adopted for use in the European Union andtherefore comply with Article 4 of the EU IAS Regulation. The financialstatements have been prepared under the historical cost convention, except forthe revaluation to market of certain financial assets and liabilities. The Group's previously published financial statements were also prepared inaccordance with International Financial Reporting Standards. These InternationalFinancial Reporting Standards have been subject to amendment and interpretationby the International Accounting Standards Board and the financial statementspresented for the years ended 31 December, 2004 and 31 December 2005 have beenprepared in accordance with those revised standards. Unless stated otherwisethese policies are in accordance with the revised standards that have beenapplied throughout the year and prior years presented in this financialstatements. The currency used in the preparation of the accompanying consolidated financialstatements is the US Dollar as the majority of the Company's business isconducted in US Dollars (USD). II. Corporate restructuring During the year the Group carried out a corporate restructuring including theintroduction of a new holding company, Hikma Pharma PLC, incorporated in GreatBritain as a public limited company on 8 September 2005. Hikma Pharma PLCchanged its name to Hikma Pharmaceuticals PLC on 19 September 2005 and on 31October 2005 Hikma Pharmaceuticals PLC acquired the issued share capital ofHikma Pharma Limited, the former holding company, for the issue of shares toshareholders on the basis of 4 shares for every 1 share held in Hikma PharmaLimited. Prior to 31 October 2005, Hikma Pharmaceuticals PLC had not commencedtrading or made any profits or losses. On 4 November 2005 the shares of HikmaPharmaceuticals PLC were listed on the London Stock Exchange.The corporate restructuring was accounted for using merger accountingprinciples. The results of the Company and its subsidiaries have been presentedon a pro forma basis for the years ended 31 December 2005 and 31 December 2004as the directors believe this information is more meaningful to readers thaninformation for the period from 8 September 2005 to 31 December 2005. Thedirectors believe that this presentation is necessary to present a true and fairview of the results of the Company and its subsidiaries for the year. III. Restatement of prior year income statement comparatives The following restatements had no effect on the profit for the 2004 financialyear or on the net assets of the Group at 31 December 2004.For the year ended 31 December 2005, the Groups' share of results of associateshas been included within operating profit as the directors consider theseactivities to be operational activities and the 2004 comparative has beenrestated. Accordingly, management fees receivable from associates of USD1,016,000 (2004: USD 333,000) are reflected in other operating expenses. In 2004the management fees were included in other income.Flotation costs totalling USD 425,000 incurred in 2004 were classified asgeneral and administrative expenses. Following flotation, the 2004 comparativeshave been restated to reflect these costs as non operational.The prior year comparatives for revenue, sales and marketing costs, and generaland administrative expenses have been restated to reflect a change in accountingpolicy for Medicaid rebates and associated administrative charges paid to thewholesale customers of the Generics division. The restatement has resulted inrevenue, sales and marketing costs, and general and administrative expensesbeing decreased by USD 1,771,000, USD 1,334,000 and USD 437,000 respectively.This restatement had no effect on operating profits for the year. The financial information in the preliminary announcement does not constitutethe Group's statutory financial statements for 2005 but has been extracted fromthe Group's 2005 financial statements and, as such, does not contain allinformation required to be disclosed in the financial statements prepared inaccordance with International Financial Reporting Standards. Statutory financialstatements for 2005 will be filed following the Annual General Meeting. Theauditors have reported on these financial statements; their report wasunqualified and did not contain a statement under section 237 (2) or (3) of theCompanies Act 1985. 2. Business and geographical segments For management purposes, the Group is organised into three operating divisions -Generics, Branded and Injectables. These divisions are the basis on which theGroup reports its primary segment information.Segment information about these businesses is presented below. 2005 USD Generics Branded Injectable Corporate and others Group(000)'s ________ ______ _________ ____________ _______ Revenue 115,208 93,012 49,303 4,692 262,215Cost of (52,861) (39,297) (30,883) (3,383) (126,424)sales ________ ________ ___________ _____________________ _________Gross 62,347 53,715 18,420 1,309 135,791profit ======== ======== =========== ===================== ========= ResultSegment 38,765 28,764 8,486 (27) 75,988result ======== ======== =========== ===================== =========Unallocatedcorporateexpenses (8,229) Share ofresults ofassociates 1,449 1,449 ======= _________Operatingprofit 69,208Flotationcosts (1,426)Finance 1,562incomeFinance (5,211)costsOther 276income ________Profitbefore 64,409taxTax (19,452)Minorityinterest (1,090) ________Profit fortheyearattributableto equity 43,867shareholders ========= 2. Business and geographical segments (continued) 2004 USD (000)'s Generics Branded Injectable Corporate and Group others (Restated) Revenue 106,225 74,013 28,859 3,280 212,377Cost of sales (48,773) (34,312) (19,140) (1,712) (103,937) _________ ________ ________ ________ ____________Gross profit 57,452 39,701 9,719 1,568 108,440 ========= ======== ========= ======== ============ ResultSegment result 41,043 22,441 4,056 986 68,526 Unallocatedcorporateexpenses (6,534) Share ofresults ofassociates 732 732 ========= __________Operatingprofit 62,724Flotationcosts (425)Finance income 326Finance costs (3,825)Other income 224 ___________Profit beforetax 59,024Tax (20,835)Minorityinterest (731) __________ Profit for theyearattributableto equityshareholders 37,458 =========== 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 ------------- 2005 2004 USD 000's USD 000's _________ ___________United States 130,454 113,101Europe 20,445 12,490Middle East and North Africa 111,283 85,826Rest of the world 33 960 _________ ___________ 262,215 212,377 ========= =========== 3. Flotation costs The total costs of flotation were USD 12,661,000, of which costs incurred inissuing shares amounting to USD 10,810,000 have been charged against the sharepremium account. The remaining amount of USD 1,851,000 incurred as a result ofthe listing exercise, but which was not eligible to be set against the sharepremium, has been reflected in flotation costs within the income statement, ofwhich USD 1,426,000 and USD 425,000 was recognised in the years ended 31December 2005 and 2004, respectively. 4. Tax For the years ended 31 December 2005 2004 USD 000's USD 000s ____________ ___________ Current tax:UK current tax 110 -Foreign tax 19,596 20,896Deferred tax (254) (61) _____________ _____________ 19,452 20,835 ============= ============== 5. Share capital 2005 2004 USD 000's USD 000's ___________ ___________ Authorised:500,000,000 ordinary shares of 10p each 88,700 88,70049,998 non - voting, redeemable preferenceshares of 1 each 90 90 =========== ============Issued and fully paid - included in shareholders'equity166,798,407 ordinary shares of 10p each 29,457 25,269 =========== ============Issued and fully paid - included in liabilities49,998 non - voting, redeemable preferenceshares of 1 each 90 - =========== ============ The Company was incorporated on 8 September 2005 with an authorised sharecapital of £50,000 divided into 2 ordinary shares of £1 each and 49,998non-voting, redeemable preference shares of £1 each. The two ordinary shares of £1 each were transferred on 8 September 2005 assubscriber shares at a price of £1 each to the two executive directors, and on15 September 2005 all the preference shares were allotted to the executivedirectors. The Company redeemed the preference shares at par on 9 February 2006.At 31 December 2005 the preference shares were recorded as a financial liabilitywithin other current liabilities. On 31 October 2005, the two ordinary shares of £1 each were subdivided into 10ordinary shares of 10p each and the authorised ordinary share capital of theCompany was increased to £50 million by the creation of an additional499,999,980 ordinary shares of 10p each. On 31 October 2005, the Company acquired the entire issued share capital ofHikma Pharma Limited pursuant to a share exchange offer, following which itbecame the holding company of the Group. Under the terms of the share exchange,shareholders in Hikma Pharma Limited received four ordinary shares in theCompany for every one share held in Hikma Pharma Limited. Total shares issuedand fully paid were 142,400,020 ordinary shares of 10p each. On 1 November 2005, and as a result of a placing, 24,137,931 ordinary shares of10p each were issued at a price of 290p per Ordinary Share. On 30 November 2005, the Company allotted 260,456 ordinary shares at a price of290p per ordinary share pursuant to the exercise of an over-allotment option. 6. Share premium Share premium USD 000's _____________ Balance at 1 January 2004, 31 December 2004 and 1 January 2005 -Premium arising on issue of equity shares 120,725Expenses of issue of equity shares 10,810)Treasury shares 159 _____________Balance at 31 December 2005 110,074 ============= 7. Reserves CumulativeUSD 000's Merger Retained translation Total reserve earnings reserve reserve _______ ________ ___________ _______ At 1 January 2004 33,920 48,043 190 82,153Cost of equity settled employee share scheme - 145 - 145Dividends on ordinary shares - (3,766) - (3,766)Profit for the year - 37,458 - 37,458Cumulative effect of change in fair value of available for sale investments - 92 - 92Cumulative effect of change in fair value of financial derivatives - 168 - 168Currency translation gain - - 1,158 1,158 _______ ________ ___________ _______ At 31 December 2004 33,920 82,140 1,348 117,408 Cost of equity settled employee share scheme - 712 - 712Deferred tax arising on stock options - 960 - 960Dividends on ordinary shares - (17,800) - (17,800)Profit for the year - 43,867 - 43,867Cumulative effect of change in fair value of available for sale investments - 980 - 980Cumulative effect of change in fair value of financial derivatives - 164 - 164Currency translation gain - - (1,941) (1,941) _______ ________ ___________ _______ At 31 December 2005 33,920 111,023 (593) 144,350 ======= ======== =========== ======= 8. Net cash from operating activities 2005 2004 USD 000's USD 000's _________ _________Profit before tax and minority interest 64,409 59,024Adjustments for:Depreciation, amortisation and impairment of:Property, plant and equipment 8,909 6,680Intangible assets 1,416 -Financial assets - 92Results from associated companies 1,449) (732)Losses on disposal of property, plant andequipment 440 390Movement on provisions 404 372Deferred income (174) (54)Cumulative effect of change in fair value ofderivatives 164 168Stock options granted 713 145Deferred tax (252) 41Interest and bank charges 5,211 3,826 _________ _________Cash flow before working capital 79,791 69,952 Change in trade and other receivables (22,311) (10,426)Change in due from associate (691) (1,080)Change in other current assets (369) (1,700)Income tax recoverable 588 (707)Change in inventories (13,306) 4,563Change in trade and other payables 16,064 1,955Change in other current liabilities (4,029) (6,532) _________ _________Cash generated by operations 55,737 56,025 Income tax paid (17,800) (19,458)Interest paid (5,224) (3,725) _________ _________Net cash generated from operating activities 32,713 32,842 ========= ========= This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Hikma Pharmaceuticals