13th Sep 2006 07:03
Hikma Pharmaceuticals Plc13 September 2006 Hikma reports Interim Results for the six months to 30 June 2006 • Revenue up 17.6% to $154.9 million • Profit attributable to shareholders up 19.9% to $30.1 million • On track for a record year of regulatory approvals • Positive outlook maintained for the full-year LONDON, 13 September 2006 - Hikma Pharmaceuticals PLC ("Hikma")(LSE: HIK) (DIFX:HIK) today announces its interim results for the six months to 20 June 2006.Hikma is a multinational pharmaceutical group focused on developing,manufacturing and marketing a broad range of generic and in-licensedpharmaceutical products. Hikma operates in the United States, Europe and acrossthe MENA region. H1 2006 financial highlights Revenue up 17.6% to $154.9 million Gross profit up 9.9% to $80.0 million R&D costs up 25.8% to $9.0 million Operating profit up 3.3% to $42.2 million Profit before tax up 9.5% to $42.4 million Profit attributable to shareholders up 19.9% to $30.1 million Diluted earnings per share* up 2.9% to 17.2 cents Dividends per share* 3.0 cents Operational highlights • Strong revenue growth achieved in the Branded and Injectables businesses • On track for a record year of regulatory approvals, with 82 approvals in the first half, compared with 98 for the full year 2005 • Capacity substantially increased across the Group to meet growing demand • Construction of the new cephalosporin plant in Portugal and R&D labs in Jordan nearing completion • In September, completed the acquisition of the 52.5% of JPI not previously owned by Hikma consolidating our position in the fast-growing Saudi and GCC markets Commenting on the results, Samih Darwazah, Chairman and Chief Executive ofHikma, said: "Hikma has had a very successful start to 2006. Our Branded and Injectablesbusinesses have performed particularly well and we have already secured almostas many regulatory approvals in the first half of 2006 as in the whole of 2005.We are on track to continue to deliver further revenue growth in the secondhalf, driven by improving conditions in the Algerian market, exceptional demandfor our Injectables products and new product launches in our Generic business inthe United States." Enquiries: Hikma Pharmaceuticals PLCSamih Darwazah, Chief Executive Officer On the day Tel: 020 7404 5959Bassam Kanaan, Chief Financial Officer On the day Tel: 020 7404 5959Susan Ringdal, Investor Relations Director Thereafter Tel: 020 7399 2770 Brunswick GroupJon Coles / Justine McIlroy / Alex Tweed Tel: 020 7404 5959 Hikma Pharmaceuticals PLC's presentation to analysts and investors will takeplace at 9.30am GMT on 13 September at the offices of Brunswick, 16 Lincoln'sInn Fields, London WC2A 3ED and will also be available on webcast atwww.hikma.com and www.cantos.com and via conference call. This may be accessedby dialling: +44 (0)20 7138 0837, and quoting 'Hikma conference call.' Thewebcast will be available as an archive to replay via the website from 12:00noon and a replay of the conference call will be available for 10 days bydialling: +44 (0)20 7806 1970, with the access code: 1573547#. Overview We are pleased to report that Hikma has continued to build on its successfultrack record in the first half of 2006. The Group has achieved a solid set ofinterim results, benefiting from the strength and diversity of our businessmodel. We have had excellent performances in both the Branded and Injectablebusinesses, and this has more than compensated for the challenging marketconditions in our Generic business in the United States, where price competitionwas intense. Financial results The Group performed well in the first half of the year, achieving revenue of$154.9 million, up 17.6% from the first half of 2005. Gross margin for the Groupwas 51.6%, down from 55.2% in the first half of 2005, but higher than the grossmargin of 48.3% achieved in the second half of 2005 and broadly in line with thegross margin of 51.8% achieved for the 2005 full year. Operating profit grew by 3.3% to $42.2 million. Operating margin increased to27.2% compared to the operating margin of 26.4% achieved for the 2005 full year,but was lower than the operating margin of 31.0% achieved in the first half of2005. This decrease in operating margin is due primarily to increased investmentin production capacity, in sales and marketing, and in R&D, together with highercorporate costs attributable largely to our new status as a publicly quotedcompany. Profit before tax increased by 9.5% to $42.4 million and profit attributable toshareholders for the period increased by 19.9% to $30.1 million. Dilutedearnings per share increased by 3.0% to 17.2 cents per share, reflecting theincrease in the weighted average number of shares following our initial publicoffering in November 2005. Business highlights Our Branded Pharmaceuticals business delivered revenue growth of 25.1% in thefirst half of the year. This was driven by strong sales in Jordan and SaudiArabia, two of our largest markets in the MENA region, and by sales indeveloping and new markets, such as the UAE, Sudan and Yemen. These results wereachieved despite disruption in the Algerian market caused by the implementationof a new reference pricing regime. We expect our business in Algeria to recoverthrough the introduction of new products, many of which will be produced locallyin our new manufacturing facilities. In the Generic Pharmaceuticals business, where revenues declined by 4.2%, wewere able partially to offset continued price erosion with strong volume growth.We expect an improvement in the second half, driven both by new product sales aswe launch a number of products approved in the first half of the year andadditional regulatory approvals over the remainder of the year. In the first half of the year, we delivered strong revenue growth of 52.9% inour Injectables business by launching new products and leveraging the investmentmade in sales and marketing in 2005 in each of our three core markets - MENA,the US and Europe. In the United States we set up a specialised distributioncompany, Hikma Pharmaceuticals (USA) Inc., with a dedicated sales force forinjectables. In Europe, our distribution agreements with Hospira are alreadyenhancing our product offering and facilitating the penetration of our productsin the European market. Research & Development The Group's product portfolio continues to grow. During the first half of theyear, we added 13 new products to the Group portfolio, which now covers 153products in 336 dosage strengths and forms. We manufacture and/or sell 26 ofthese products under-license from the originator and anticipate signing newlicensing agreements in the second half of this year, primarily in our Brandedand Injectable businesses. During the first half of 2006 we received 82 regulatory approvals(1), including7 ANDA approvals for the Generic business and 2 tentative ANDA approvals for theInjectable business. This compares very favourably with the 98 regulatoryapprovals received for the whole of 2005. These approvals will help us todeliver further growth in the second half of the year. To ensure the continuous development of our product pipeline, we submitted atotal of 37 regulatory filings(2), which included 29 new product applications inthe first half of the year. 13 of these filings were ANDAs in the US. As of 30June 2006, we had a total of 96 pending approvals and 74 products underdevelopment across our three main businesses - Generic, Branded and InjectablePharmaceuticals. Dividend The Board has declared an interim dividend of 3.0 cents per share (approximately1.6 pence per share). The interim dividend will be paid on 27 October 2006 toshareholders on the register on 29 September 2006 with an ex-dividend date of 27September 2006. Recent developments In September we completed the purchase of the remaining 52.5% of JPI notpreviously held by the Group, thus strengthening our position in the SaudiArabian market and improving our access to the fast growing GCC region. Now thatwe have full control of JPI, we are also better positioned to utilise JPI's FDAapproved manufacturing facilities to supply the US market. The new cephalosporin plant in Portugal is nearing completion and is on track tobegin production in early 2007. In Jordan, we are also nearing completion of anew quality control laboratory and research and development facility. In Italy,the expansion of the lyophilisation plant is underway. Outlook Since the end of the first half of 2006, the Group has continued to performwell. We are on track to deliver further revenue growth in the second half ofthe year, driven by continued growth across the MENA region, the continuation ofsignificant growth in the Injectables business and new product launches in theGeneric business in the United States. Overall, we remain confident in theGroup's ability to deliver solid financial results for the full year. Business and financial review Branded Pharmaceuticals The pharmaceutical market in the MENA Region is predominantly a branded market,in which patented, generic and OTC pharmaceutical products are marketed underspecific brand names. Our Branded business manufactures branded genericpharmaceutical products for sale across the MENA Region and, increasingly,Europe. The Branded business is now our largest business in terms of revenue. Revenue inthis business increased by 25.1% to $64.0 million in the first half of 2006,compared to $51.1 million in the first half of 2005. The increase was dueprimarily to strong demand for key products, especially Amoclan, Prograf andSuprax, across most of our major MENA markets. Enhanced sales and marketingefforts by the significantly enlarged sales force relative to the first half oflast year has also helped to drive revenues forward. During the first half, the Branded business received 31 regulatory approvals inthe MENA region, including five in Jordan and 17 in Europe and other markets. Algeria, Saudi Arabia and Jordan remained the Branded business's three keymarkets in the first half of 2006. In Algeria in the first half, we grew ourmarket share to 3.4%, compared to 3.2% for the 2005 full year. We alsomaintained our position as the seventh largest pharmaceutical manufacturer andsecond largest generic pharmaceutical manufacturer by value in the Algerianmarket*. The completion of our manufacturing facilities in Algeria at the end of2005, and the subsequent approval of the facilities by the Algerian Ministry ofHealth in early 2006, means we can now produce products locally for the Algerianmarket. Our local presence is also helping us to expedite the registration ofnew products in Algeria - where we received ten regulatory approvals in thefirst half of the year. This compares to the five regulatory approvals receivedby the Branded business as a whole in Algeria in the 2005 full year. The new reference pricing system implemented in Algeria had a negative impact onour operations during the first half of the year, forcing us to grant higherdiscounts and distribution allowances in an effort to maintain sales. We wereable to partially offset the impact of the new system through the launch of newproducts and line extensions and through higher sales volumes. Our performancebegan to improve in the last two months of the first half and we expect thistrend to continue into the second half of the year. Our strong performance in Saudi Arabia was driven, in part, by the addition of35 new medical representatives in the second half of 2005 and through moretargeted sales and marketing efforts. In Saudi Arabia, our combined market sharein value terms, including that of our associated business JPI, increased to 3.8%in the first half of 2006, compared to 3.5% for the 2005 full year, making usthe fifth largest pharmaceutical manufacturer in this market*. In Jordan, as in Algeria and Saudi Arabia, sales growth was driven by the launchof new products and by the enlarged sales team. In Jordan we maintained ourposition as market leader during the first half of the year and increased ourmarket share to 7.1%, up from 6.4% for the 2005 full year.* We are seeing growth in newer markets like the United Arab Emirates ("UAE"),Sudan and Libya and launched our products in Yemen earlier this year. We expectthese new markets will make an increasing contribution to Branded sales. Gross profit of the Branded business increased by 15.6% to $35.4 million,compared to $30.6 million in the first half of 2005. The Branded business'sgross margin decreased to 55.3%, compared to 59.9% in the first half of 2005.This decline reflects primarily the impact that reference pricing and new plantexpenses had on margins in Algeria. Branded operating profit increased by 23.8% in the first half of 2006, to $22.0million. Operating margins in the Branded business were 34.4% in the first halfof 2006, down from 34.8% in 2005. Generic Pharmaceuticals Revenue in our Generic business decreased by 4.2% to $53.8 million, compared to$56.2 million in the first half of 2005. The change was primarily due tocontinued price erosion in the US market, which was only partially offset byvolume increases. As expected, with only one new product launched during thefirst half of the year, it was difficult to offset the pricing pressure onexisting products. During the first half, however, the Generic business receivedseven ANDA approvals. We estimate the addressable market for these sevenapprovals to be approximately $300 million, based on IMS estimates of 2005 USsales. We expect sales from the launch of these products, as well as fromadditional products approved in the second half, to help deliver growth in theGeneric business for the full year. Gross profit of the Generic business decreased by 12.0% to $28.9 million,compared to $32.9 million in the first half of 2005, reflecting continued priceerosion despite increased volumes and an increase in overheads as new facilitiesand machinery came on line during the year, which increased the fixed cost base.We were able to partially offset some of the impact of these factors through ourexpertise in API sourcing, which helped us to reduce raw material costs duringthe period. Generic gross margin was 53.8%, compared to 58.5% in the first halfof 2005. Generic operating profit decreased by 20.0% to $17.5 million. Operating marginsin the Generic business decreased to 32.6% of revenue, compared to 38.9% in thefirst half of 2005. Injectable Pharmaceuticals Our Injectables business manufactures injectable generic pharmaceutical productsin powder, liquid and lyophilised forms for sale across the MENA Region, theUnited States and Europe. Injectables is our fastest growing and mostgeographically diverse business, contributing 21.9% of total Group revenue inthe first half of 2006, compared to 16.9% in the first half of 2005 and 13.6% inthe first half of 2004. Revenue in our Injectables business increased by 52.9% to $34.0 million,compared to $22.2 million in the first half of 2005. The increase reflectsstrong sales across all three regions. During the first half, the Injectables business received 27 regulatoryapprovals, including 2 in Europe, 20 in the MENA region and 2 tentative ANDAapprovals in the United States. Revenues were particularly strong in Europe, where sales grew by 65.5%. The mostsignificant revenue growth was seen in Germany and Italy, driven by the launchof new products and our enlarged sales and marketing presence. At the end ofJune we had 14 sales and marketing representatives in Europe. During the secondhalf of the year, we expect to see an increasing contribution from Austria, TheNetherlands and Portugal, thanks to new product launches and enhanced sales andmarketing efforts. We also expect to launch a number of new products into theGerman and Portuguese markets. In the United States, Injectables sales increased by 60.3% to $9.3 million, inpart due to the newly established Hikma Pharmaceuticals (USA), Inc. We expect tocontinue to build momentum in the US market in the second half of the year,through the launch of new products and the continued penetration by ourInjectable sales force into the hospital market. In the MENA Region, sales of injectables grew by 40.1% compared to the firsthalf of 2005. This strong performance was driven by more focused sales efforts,particularly in Algeria and Saudi Arabia, the continuous introduction of newproducts and formulations and the development of newer markets. At the end ofJune we had a total of 55 sales and marketing representatives in the region. Weplan on increasing this number slightly in the second half of the year as we addrepresentatives in some of our newer markets. We expect that the enhancedcoverage of new markets, combined with the launch of a number of new products,will drive continued growth in the second half of the year. Injectables gross profit increased by 72.6% to $14.8 million, compared to $8.6million in the first half of 2005. The Injectable Pharmaceuticals business'sgross margin increased to 43.5%, compared to 38.6% in the first half of 2005.The increase in gross profit margin reflects the increasing scale of thebusiness as we achieve higher utilisation rates on the back of strong salesacross all regions. Injectables operating profit increased by 115.1% to $7.6 million, compared to$3.6 million in the first half of 2005, despite increased spending on R&D andsales and marketing. Injectables operating margins improved to 22.5% in thefirst half of 2006, up from 16.0% in the first half of 2005, also as a result ofthe increased scale of the business. The construction of our new cephalosporin plant in Portugal, which will hostthree new production lines, warehouses and laboratory facilities, is nearcompletion and on track to begin production in early 2007. Other businesses Other businesses, which primarily include Arab Medical Containers, amanufacturer of plastic specialised packaging, and International PharmaceuticalsResearch Centre (IPRC), which conducts bio-equivalency studies, had aggregaterevenue in the first half of 2006 of $3.1 million, or 2.0% of total Grouprevenue, compared to aggregate revenue of $2.2 million in the first half of2005. Group performance Revenue for the Group increased by 17.6% to $154.9 million, compared to $131.8million in the first half of 2005. The increase was primarily due to excellentperformances in the Branded and Injectable businesses, which more thancompensated for the difficult market conditions in our Generic business in theUnited States. In the first half of 2006, 41.3% of revenue was generated by our BrandedPharmaceuticals ("Branded") business, compared to 38.8% in the first half of2005. 34.8% of revenue was generated by our Generic Pharmaceuticals ("Generic")business, compared to 42.6% in the first half of 2005 and 21.9% was generated byour Injectable Pharmaceuticals ("Injectables") business, compared to 16.9% inthe first half of 2005. 50.5% of revenue was generated in the Middle East and North Africa ("MENA")region, compared to 46.2% in the first half of 2005. 40.7% of revenue wasgenerated in the United States, compared to 47.0% in the first half of 2005, and8.8% of revenue was generated in Europe, compared to 6.7% in the first half of2005. The Group's cost of sales increased by 27.0% to $74.9 million, compared to $59.0million in the first half of 2005. Cost of sales represented 48.4% of Grouprevenue, compared to 44.8% in the first half of 2005. The Group's gross profitincreased by 9.9% to $80.0 million, compared to $72.8 million in the first halfof 2005. Group gross margin for the first half of 2006 was 51.6%, down from55.2% in the first half of 2005, but in line with the 51.8% gross marginachieved by the Group for the 2005 full year. While historically the Group hasmaintained fairly stable gross margin on a full-year basis, we have seensignificant variations in gross margin from one half to the other, usually dueto variations in geographic and product sales mix. In respect of our continuingoperations, we expect the Group's gross margin in 2006 will remain relativelystable over the course of the year. Group operating expenses, analysed below, grew in the first half of 2006 by18.7% to $40.1 million, compared to $33.8 million in the first half of 2005. Sales and marketing expenses increased by 14.5% to $15.8 million, due primarilyto the increase in sales and marketing headcount in the MENA region and Europemade in the second half of 2005. Sales and marketing expenses represented 10.2%of Group revenue in the first half of 2006, compared to 10.5% in the first halfof 2005. The Group's general and administrative expenses increased by 14.9% to $13.2million, compared to $11.5 million in the first half of 2005. As expected, thechange arose mainly from the necessary costs associated with being a publiclyquoted company. General and administrative expenses represented 8.5% of Grouprevenue in the first half of 2006, compared to 8.7% in the first half of 2005. Investment in R&D for the Group increased by 25.8% to $9.0 million, compared to$7.2 million in the first half of 2005. The benefit of our ongoing investment inR&D has been seen primarily in the Generic Pharmaceuticals business, where wecontinue to increase the number of ANDA filings and therefore have associatedbio-equivalency costs. Total investment in R&D represented 5.8% of Grouprevenue, compared to 5.4% in the first half of 2005. The Group's earnings from equity investments were $1.2 million in 2006, up from$0.8 million in 2005. The increase is explained by an increased contributionfrom JPI in Saudi Arabia, an associate business for the first half of 2006. Operating profit for the Group increased by 3.3% to $42.2 million, compared to$40.8 million in the first half of 2005. Group operating margin decreased to27.2% in 2006, compared to 31.0% in the first half of 2005, due primarily toincreased investment in additional production capacity, sales and marketing, andR&D, together with higher corporate costs attributable largely to being apublicly quoted company. Research & Development In the six months to 30 June 2006, Hikma was granted 82 regulatory approvals,including seven ANDAs and two tentative ANDAs. Also during this period, Hikmasubmitted 37 regulatory filings, including 13 ANDAs. These comprised filings fornew products (pharmaceutical compounds not yet launched by the Company andexisting compounds being introduced into new regions) and line extensions (theregistration of new dosage strengths or forms of existing products). We estimate that the currently marketed equivalent products of the 62 newproducts covered by the Group's pending approvals had sales of approximately $14billion in the year ended 31 December 2005 in the markets covered by the pendingapprovals. At 30 June 2006, we had a total of 96 pending approvals and 74 products underdevelopment, the majority of which should receive several marketingauthorisations for differing strengths and/or product forms over the next fewyears. Filings as New product Pending Pending approvals of of 30 June filings as of approvals as new products as of 30 2006 30 June 2006 of 30 June June 2006 2006GenericPharmaceuticalsUnited States 10 10 24 20BrandedPharmaceuticalsJordan 14 9 18 10Europe 2 1 10 2 16 10 28 12InjectablePharmaceuticalsUnited States 3 3 17 15Jordan 7 5 15 9Europe 1 1 12 6 11 9 44 30 37 29 96 62 Table includes filings and pending approvals in the US and Jordan and the firstfiling in Europe. It does not include subsequent filings in additional Europeanmarkets or in other MENA countries. Financial performance Finance income The Group's financing income includes interest income. Financing incomeincreased by $2.1 million to $2.5 million due to interest income received fromthe proceeds of the Initial Public Offering ("IPO"). Interest expense Interest expense was nearly unchanged at $2.4 million compared to the first halfof 2005. While proceeds from the IPO were used to pay down debt in the secondhalf of 2005 reduced the Group's interest expense, this was offset by increasedinterest expense caused by rising interest rates on credit facilities used tofinance the Group's increased working capital requirements. Profit before tax Profit before taxes and minority interest for the Group increased by 9.5% to$42.4 million, compared to $38.7 million in the first half of 2005. Tax The Group had tax expenses of $11.4 million in the first half of 2006. Theeffective tax rate was 27.0%, a year on year decrease of 6.4 percentage points.The tax rate decrease was primarily due to a shift in the geographic sales mixtowards lower tax countries, particularly in the MENA Region. Profit for the period The Group's profit attributable to equity holders of the parent grew by 19.9% to$30.1 million for the year six months to 30 June 2006. Earnings per share Diluted earnings per share for the six months to 30 June 2006 were 17.2 cents,up 2.9% from 16.7 cents in the first half of 2005. Dividend The Board has declared an interim dividend of 3.0 cents per share (approximately1.6 pence per share). The Board is targeting a dividend payout for the full yearof 20%. The interim dividend will be paid on 27 October 2006 to shareholders onthe register on 29 September 2006 with an ex-dividend date of 27 September 2006. Cash flow and investment Net cash inflow from operating activities was $9.6 million, compared to $0.7million in the first half of 2005. Net working capital increased by $29.4million, primarily due to an increase in receivables, resulting from highersales, particularly in the MENA region, where collection periods are generallyhigher. Overall, however, receivable days decreased in the first half to 105days, down from 114 days at 30 June 2005. Inventory days were largely unchangedat 160 days. Inventory has been maintained at this level in anticipation of afurther growth in sales in the second half of the year. Capital expenditure Net cash used for investing activities was $26.2 million, compared to $0.3million in the first half of 2005. Of this, capital expenditure amounted to$25.0million, compared to $8.9 million in the first half of 2005 and $23.4million for the 2005 full year. This expenditure relates primarily to the newcephalosporin plant in Portugal, the construction of a new quality controllaboratory and research and development facility in Jordan, and the expansion ofthe lyophilisation plant in Italy - the funds for which were raised through theCompany's IPO in November of last year. During the first half of the year theGroup also made regular investments to upgrade and maintain existing facilities. Balance sheet The Group's cash balance decreased by $24.0 million in the first half of 2006 to$117.1 million, from $141.1 million at 31 December 2005. The Group generated$9.6 million through normal operating activities, which was offset by higherworking capital, capital expenditures, debt repayments and dividends. The Group's net cash position at 30 June 2006 was $69.1 million, compared to anet debt position of $32.8 million at 30 June 2005, reflecting proceeds raisedthrough the Company's IPO in November 2005. Net cash/debt 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. Intangible assets increased by $2.8 million from 30 June 2005. About $1.8million of which relates to the second half of 2005 and arose mainly from thegood will re-evaluation of our newly acquired subsidiary, IBPP in Italy. Theincrease in the first half of 2006 of $1.0 million is mostly due to theacquisition of marketing files in the MENA region and Europe, capitalization ofERP costs in Jordan and amortization. INDEPENDENT REVIEW REPORT TO THE MEMBERS OF HIKMA PHARMACEUTICALS PLC Introduction We have been instructed by the company to review the financial information forthe six months ended 30 June 2006 which comprise the consolidated incomestatement, the consolidated balance sheet, the consolidated cash flow statement,the consolidated statement of changes in equity, and related notes 1 to 8. Wehave read the other information contained in the interim report and consideredwhether it contains any apparent misstatements or material inconsistencies withthe financial information. This report is made solely to the company in accordance with Bulletin 1999/4issued by the Auditing Practices Board. Our work has been undertaken so that wemight state to the company those matters we are required to state to them in anindependent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe company, for our review work, for this report, or for the conclusions wehave formed. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolicies and presentation applied to the interim figures are consistent withthose applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with the guidance contained in Bulletin1999/4 issued by the Auditing Practices Board for use in the United Kingdom. Areview consists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with International Standards on Auditing (UK andIreland) and therefore provides a lower level of assurance than an audit.Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2006. Deloitte & Touche LLPChartered AccountantsLondon, United Kingdom12 September 2006 Consolidated Income Statement H1 * H1 * FY * Notes 2006 2005 2005 USD 000's USD 000's USD 000's (Unaudited) (Audited) (Audited) ---------- --------- --------- Revenue 2 154,913 131,775 262,215Cost of sales 2 (74,945) (59,000) (126,424) ---------- --------- ---------Gross profit 2 79,968 72,775 135,791 Sales and marketing costs (15,832) (13,833) (27,367)General and administrative expenses (13,215) (11,506) (22,610)Research and development costs (9,024) (7,171) (16,507)Other operating expenses (2,045) (1,284) (3,556)Other operating income 1,064 1,040 2,008Share of results of associates 1,247 777 1,449 ---------- --------- ---------Operating profit 42,163 40,798 69,208 Flotation costs - (570) (1,426)Finance income 2,547 490 1,562Finance costs (2,441) (2,404) (5,211)Other income 105 381 276 ---------- --------- ---------Profit before tax 42,374 38,695 64,409 Tax 3 (11,441) (12,938) (19,452) ---------- --------- ---------Profit for the period 30,933 25,757 44,957 ========== ========= =========Attributable to:Minority interest 857 667 1,090Equity holders of the parent 30,076 25,090 43,867 ---------- --------- --------- 30,933 25,757 44,957 ========== ========= =========Earnings per share (cents)Basic 5 18.0 17.6 30.0 ========== ========= =========Diluted 5 17.2 16.7 28.3 ========== ========= =========Dividend per share (cents) 4 3.0 - 7.3 ========== ========= ========= All trading resulted from continuing operations. * On this page and throughout these interim statement, "H1 2006" refers to thesix months ending 30 June 2006, "H1 2005" refers to the comparative period and"FY 2005" refers to the year ended 31 December 2005. Consolidated Balance Sheet 30 June 30 June 31 December Notes 2006 2005 2005 USD 000's USD 000's USD 000's (Unaudited) (Audited) (Audited) ---------- --------- --------- Non-current assetsIntangible assets 8,702 5,924 7,735Property, plant and equipment 112,164 80,168 91,209Interest in associate 8,797 6,880 7,552Due from associate 3,886 1,757 2,304Deferred tax assets 1,760 171 1,506Available for sale investments 718 448 1,439Financial and other non-current assets 1,368 1,097 1,276 ---------- --------- --------- 137,395 96,445 113,021 ---------- --------- ---------Current assetsInventories 66,921 52,561 58,017Income tax recoverable - 2,603 1,320Trade and other receivables 6 100,023 89,649 82,634Collateralised cash 5,239 5,062 5,120Cash and cash equivalents 111,818 46,150 135,959Other current assets 1,760 1,825 1,891 ---------- --------- --------- 285,761 197,850 284,941 ---------- --------- ---------Total assets 423,156 294,295 397,962 ========== ========= =========Current liabilitiesBank overdrafts and loans 20,696 34,455 21,146Obligations under finance leases 517 1,357 797Trade and other payables 42,589 35,016 44,017Income tax provision 7,441 7,402 5,965Other provisions 1,269 885 1,233Other current liabilities 3,589 3,423 3,542 ----------- ---------- ---------- 76,101 82,538 76,700 ----------- ---------- ----------Net current assets 209,660 115,312 208,241 ----------- ---------- ----------Non-current liabilitiesLong-term financial debts 25,675 44,709 30,791Deferred income 400 473 416Obligations under finance leases 1,075 2,954 1,411Deferred tax liabilities 1,174 1,038 1,162 ----------- ---------- ---------- 28,324 49,174 33,780 ----------- ---------- ----------Total liabilities 104,425 131,712 110,480 =========== ========== ==========Net assets 318,731 162,583 287,482 =========== ========== ==========EquityShare capital 29,554 25,269 29,457Share premium 110,470 159 110,074Reserves 174,441 133,961 144,350 ----------- ---------- ----------Equity attributable to equityholders of the parent 314,465 159,389 283,881 Minority interest 4,266 3,194 3,601 ----------- ---------- ----------Total equity 318,731 162,583 287,482 =========== ========== ========== Consolidated Statement of Changes in EquityUSD 000's Total equity attributable Cumulative to equity Merger Retained translation Total Share Share shareholders30 June 2005 (Audited) reserve earnings reserve reserves Capital premium of the parent --------- ----------- ----------- --------- --------- -------- ----------- At 1 January 2005 33,920 82,140 1,348 117,408 25,269 (187) 142,490Cost of equity settledemployee share scheme - 330 - 330 330Sale of treasury shares - - - - - 346 346Dividends on ordinary shares - (7,120) - (7,120) - - (7,120)Profit for the period - 25,090 - 25,090 - - 25,090Cumulative effect ofchange in fair value offinancial derivatives - (77) - (77) - - (77)Currency translation loss - - (1,670) (1,670) - - (1,670) --------- ----------- ----------- --------- --------- -------- -----------At 30 June 2005 33,920 100,363 (322) 133,961 25,269 159 159,389 ========= =========== =========== ========= ========= ======== =========== 31 December 2005 (Audited) At 1 January 2005 33,920 82,140 1,348 117,408 25,269 (187) 142,490Issue of equity shares - - - - 4,188 - 4,188Premium arising on issue of equity shares - - - - - 120,725 120,725Cost of equity settledemployee share scheme - 712 - 712 - - 712Expenses of issue of equity shares - - - - - (10,810) (10,810)Sale of treasury shares - - - - - 346 346Deferred tax arising on stock options - 960 - 960 - - 960Dividends on ordinary shares - (17,800) - (17,800) - - (17,800)Profit for the year - 43,867 - 43,867 - - 43,867Cumulative effect of change in fair value of availablefor sale investments - 980 - 980 - - 980Cumulative effect of change infair value of financial derivatives - 164 - 164 - - 164Currency translation loss - - (1,941) (1,941) - - (1,941) --------- ----------- ----------- --------- --------- -------- -----------At 31 December 2005 33,920 111,023 (593) 144,350 29,457 110,074 283,881 ========= =========== =========== ========= ========= ======== =========== 30 June 2006 (Unaudited) At 1 January 2006 33,920 111,023 (593) 144,350 29,457 110,074 283,881Issue of equity shares - - - - 97 - 97Premium arising on issue ofequity shares - - - - - 396 396Cost of equity settledemployee share scheme - 443 - 443 - - 443Deferred tax arising on stock options - 108 - 108 - - 108Dividends on ordinary shares - (1,489) - (1,489) - - (1,489)Profit for the period - 30,076 - 30,076 - - 30,076Cumulative effect of change in fair value ofavailable for sale investments - (718) - (718) - - (718)Cumulative effect of change in fair value of financial derivatives - 157 - 157 - - 157Currency translation gain - - 1,514 1,514 - - 1,514 --------- ----------- ----------- --------- --------- -------- -----------At 30 June 2006 33,920 139,600 921 174,441 29,554 110,470 314,465 ========= =========== =========== ========= ========= ======== =========== Consolidated Cash Flow Statement H1 H1 FY Note 2006 2005 2005 USD 000's USD 000's USD 000's (Unaudited) (Audited) (Audited) ---------- --------- --------- Net cash from operating activities 7 9,623 747 32,713 Investing activities Purchases of property, plant andequipment (25,040) (8,948) (23,423)Proceeds from disposal of property,plant and equipment 289 438 873Purchase of intangible assets (1,600) (240) (562)Investment/(reduction) in financial and other non-current assets 125 120 (78)Disposal of financial and other assets - 1,479 - Investment/(disposal) in available for sale securities 4 (39) (35)Reduction of cash deposits - 7,692 7,692Acquisition of subsidiary - (785) (825)Cash acquired on acquisitionof subsidiary - 4 4 ---------- --------- ---------Net cash used in investing activities (26,222) (279) (16,354) ---------- --------- ---------Financing activitiesProceeds from the sale of treasury shares - 346 346Issuance of new shares 493 - 124,913Increase in collateralised cash (119) (5,062) (5,120)Increase in long-term financial debts 497 16,165 25,583Repayment of long-term financial debts (5,611) (5,642) (20,895)(Repayments)/increase in short-termborrowings (448) 4,567 (15,659)Net (repayments)/increase in obligationsunder finance leases (615) 159 (3,109)Dividends paid (1,489) (7,120) (17,800)Costs of issue of new shares - - (10,810) ---------- --------- ---------Net cash (used in)/from financingactivities (7,292) 3,413 77,449 ---------- --------- ---------Net (decrease)/increase in cashand cash equivalents (23,891) 3,881 93,808 Cash and cash equivalents atbeginning of period 135,959 41,415 41,415 Effect of foreign exchange ratechanges (250) 854 736 ---------- --------- ---------Cash and cash equivalents at end of period 111,818 46,150 135,959 ========== ========= ========= Notes to the interim accounts 1. Significant accounting policies Basis of accounting The unaudited financial information for the six months ended 30 June 2006 andthe comparative financial information for the six months ended 30 June 2005 hasbeen prepared, using the same accounting policies and, with the exception of theclassification of certain receivables and payables, on a basis consistent withthe audited full year results for the year ended 31 December 2005. Thereclassification of certain receivables and payables is explained in note 6 tothe interim accounts. The financial information has been prepared under thehistorical cost convention, except for the revaluation to market of certainfinancial assets and liabilities. The financial information for the year ended 31 December 2005 does notconstitute statutory accounts within the meaning of Section 240 of the Company'sAct 1985. Statutory accounts for the year ended 31 December 2005, which wereprepared under International Financial Reporting Standards (IFRSs) issued by theInternational Accounting Standards Board, have been filed with the Registrar ofCompanies. The auditor's report on those accounts was unqualified and did notcontain any statement under Section 237 of the Companies Act 1985. 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). 2. Business and geographical segments For management purposes, the Group is currently organised into three operatingdivisions - Generics, Branded and Injectables. These divisions are the basis onwhich the Group reports its primary segment information. Segment information about these businesses is presented below. H1 2006 Generics Branded Injectable Others GroupUSD 000's(Unaudited) Revenue 53,842 63,974 33,983 3,114 154,913Cost of sales (24,899) (28,590) (19,191) (2,265) (74,945) -------- -------- --------- -------- --------Gross profit 28,943 35,384 14,792 849 79,968 -------- -------- --------- -------- --------ResultSegment result 17,530 22,013 7,641 (100) 47,084 ======== ======== ========= ========Unallocated corporateexpenses (6,168) Share of results ofassociates - 1,247 - - 1,247 ======== ======== ========= ======== -------- Operating profit 42,163 Finance income 2,547Finance costs (2,441)Other income 105 --------Profit before tax 42,374Tax (11,441) --------Profit for the period 30,933 Attributable to:Minority interest 857Equity holders of theparent 30,076 -------- 30,933 ======== 2. Business and geographical segments (continued) H1 2005 Generics Branded Injectable Others GroupUSD 000's(Audited) Revenue 56,179 51,130 22,227 2,239 131,775Cost of sales (23,299) (20,518) (13,655) (1,528) (59,000) --------- -------- --------- -------- --------Gross profit 32,880 30,612 8,572 711 72,775 --------- -------- --------- -------- --------ResultSegment result 21,842 17,778 3,553 686 43,859 ========= ======== ========= ======== Unallocated corporateexpenses (3,838) Share of results ofassociates - 777 - - 777 ========= ======== ========= ======== -------- Operating profit 40,798Flotation costs (570)Finance income 490Finance costs (2,404)Other income 381 --------Profit before tax 38,695Tax (12,938) --------Profit for the period 25,757 Attributable to:Minority interest 667Equity holders of theparent 25,090 -------- 25,757 ========2. Business and geographical segments (continued) FY 2005 Generics Branded Injectable Others GroupUSD 000's(Audited) 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 ========== ========= ========= ======== Unallocated corporateexpenses (8,229) Share of results ofassociates - 1,449 - - 1,449 ========== ========= ========= ======== --------- Operating profit 69,208Flotation costs (1,426)Finance income 1,562Finance costs (5,211)Other income 276 ---------Profit before tax 64,409Tax (19,452) ---------Profit for the year 44,957 Attributable to:Minority interest 1,090Equity holders of theparent 43,867 --------- 44,957 ========= 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 ------------------------ H1 H1 FY 2006 2005 2005 USD 000's USD 000's USD 000's (Unaudited) (Audited) (Audited) --------- -------- -------- United States 63,110 61,971 130,454Europe and Rest of the World 13,580 8,884 20,478Middle East and North Africa 78,223 60,920 111,283 --------- -------- -------- 154,913 131,775 262,215 ========= ======== ======== 3. Tax H1 H1 FY 2006 2005 2005 USD 000's USD 000's USD 000's (Unaudited) (Audited) (Audited) ---------- --------- ---------Current tax:UK current tax 207 - 110Foreign tax 11,234 12,644 19,596Deferred tax - 294 (254) ---------- --------- --------- 11,441 12,938 19,452 ========== ========= =========4. Dividends The board has recommended a dividend of USD 5 million, equivalent to 3.0 centsper share, (30 June 2005: nil), (31 December 2005: 7.5 cents per share) as thedividend in respect of the interim period to be paid on 27 October 2006 to allshareholders on the registrar on 29 September 2006. 5. Earnings per share The calculation of the basic and diluted earnings per share is based on thefollowing data: H1 H1 FY 2006 2005 2005 USD 000's USD 000's USD 000's (Unaudited) (Audited) (Audited) ---------- --------- ---------Earnings for the purposes of basic anddiluted earnings per share being net profitattributable to equity holders of the parent 30,076 25,090 43,867 ========== ========== ========= Number Number Number ---------- --------- ---------Number of shares '000 '000 '000Weighted average number of ordinary shares forthe purposes of basic earnings per share 166,987 142,400 146,454 Effect of dilutive potential ordinary shares :Share options 8,335 7,843 8,402 ---------- --------- ---------Weighted average number of ordinary shares forthe purposes of diluted earnings per share 175,322 150,243 154,856 ========== ========== ========= Basic / Cents per share 18.0 17.6 30.0 ---------- --------- --------- Diluted / Cents per share 17.2 16.7 28.3 ---------- --------- --------- 6. Trade and other receivables 30 June 30 June 31 December 2006 2005 2005 USD 000's USD 000's USD 000's (Unaudited) (Audited) (Audited) ---------- -------- ---------- Trade receivables 90,754 83,436 72,609Other prepayments 3,987 3,179 5,389Interest receivable 413 184 217Employee advances 69 167 68Value added tax recoverable 4,735 2,657 3,889Other receivables 65 26 462 --------------- ------------- ------------- 100,023 89,649 82,634 =============== ============= ============= Trade receivables are presented net of commissions and distribution allowancesof $ 5,874,000 (June 2005:$ 3,705,000, December 2005: $ 4,832,000) which hadpreviously been presented as liabilities within "Trade and other payables". Thebalance sheets at 30 June 2005 and 31 December 2005 reflect this adjustment.Current assets and current liabilities at these dates have decreased by the sameamounts. Net current assets and net assets are unchanged. 7. Net cash from operating activities H1 H1 FY 2006 2005 2005 USD 000's USD 000's USD 000's (Unaudited) (Audited) (Audited) ---------- --------- --------- Profit before tax and minority interest 42,374 38,695 64,409Adjustments for:Depreciation and amortisation of:Property, plant and equipment 5,305 4,265 8,909Intangible assets 632 558 1,416Results from associated companies (1,247) (777) (1,449)Losses on disposal of property, plant andequipment 62 425 440Gains from sale of investments (60) (120) -Movement on provisions (96) 56 152Deferred income (16) (118) (174)Cumulative effect of change in fair value ofderivatives - (77) 164Stock options granted 443 330 713Finance income (2,547) (490) (1,562)Interest and bank charges 2,441 2,404 5,211 --------------- ------------- -------------Cash flow before working capital 47,291 45,151 78,229Change in trade and other receivables (17,389) (27,310) (20,544)Change in due from associate (1,582) (144) (691)Change in other current assets 4,963 (981) 219Change in inventories (8,905) (7,850) (13,306)Change in trade and other payables (1,428) 6,513 14,297Change in other current liabilities (5,033) (2,361) (4,029) --------------- ------------- -------------Cash generated by operations 17,917 13,018 54,175 Income tax paid (8,646) (10,320) (17,800)Finance income 2,547 490 1,562Interest paid (2,195) (2,441) (5,224) --------------- ------------- -------------Net cash generated from operatingactivities 9,623 747 32,713 =============== ============= ============= 8. Post Balance sheet events On 11 September 2006 the group acquired the remaining 52.5% share capital ofAl-Jazeera Pharmaceutical industries for USD 21,000,000. -------------------------- * Following the IPO in November 2005, the weighted average number of shares forthe first half of 2006 was 166,987,000 shares (H1 2005: 142,400,000). (1) Approvals comprise approvals for new products (pharmaceutical compounds notyet launched by the Group), existing compounds being registered in new regionsand countries, and line extensions (2)Filings comprise filings for new products and new line extensions andfor,existing compounds and line extensions being introduced into new regions * Source: IMS Health, MAT 6/2006. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Hikma Pharmaceuticals