TIDMHIK
RNS Number : 0218D
Hikma Pharmaceuticals Plc
16 March 2011
PRESS RELEASE
Hikma's diversified business delivers strong sales and 25%
earnings growth in 2010
16 March 2011 - Hikma Pharmaceuticals PLC ("Hikma") (LSE: HIK)
(NASDAQ DUBAI: HIK), the fast growing multinational pharmaceutical
group, today reports its preliminary results for the year ended 31
December 2010.
Summary P&L ($ million) 2010 2009 Change
------------------------------------- ------ ------ -------
Revenue 730.9 636.9 +14.8%
------------------------------------- ------ ------ -------
Gross profit 357.3 304.4 +17.4%
------------------------------------- ------ ------ -------
Operating profit 135.1 107.3 +25.9%
------------------------------------- ------ ------ -------
Profit attributable to shareholders 98.8 77.7 +27.2%
------------------------------------- ------ ------ -------
Diluted earnings per share (cents) 50.2 40.1 +25.2%
------------------------------------- ------ ------ -------
Dividend per share (cents) 13.0 11.0 +18.2%
------------------------------------- ------ ------ -------
Net cash from operating activities 144.8 119.0 +21.7%
------------------------------------- ------ ------ -------
2010 Highlights
-- Group revenues up 14.8% and operating profit up 25.9%,
reflecting continuous growth through diversification
-- Gross margin improved to 48.9%, compared to 47.8% in 2009
-- Operating margin increased to 18.5%, compared to 16.8% in
2009
-- Net cash flow from operating activities increased by 21.7% to
$144.8 million through excellent working capital management
-- Continued new product delivery across all countries and
markets
o 100 products launched
o 230 product approvals received
-- Successful completion of acquisitions in Tunisia and Algeria,
strengthening our presence and capabilities in the MENA region
-- Agreement to acquire the US generic injectables business of
Baxter Healthcare Corporation, transforming our global Injectables
business
-- Strategic partnership signed with South Korea's Celltrion to
market nine biosimilar products throughout the MENA region
Said Darwazah, Chief Executive Officer of Hikma, said:
"In 2010, Hikma continued its track record of doubling sales
every four years. This success rests on the strength of our
diversified business. We achieved double digit growth in our
Branded business, with an excellent performance in our top markets.
The performance of our Generics business exceeded our expectations,
as our commitment to quality and service has helped to create new
opportunities in the very competitive US market. This commitment to
quality and service also contributed to the strong performance of
our US injectables business and to the increased demand for
injectable contract manufacturing in the US and Europe.
On the back of these strong results, we entered 2011 with good
momentum across all our businesses. The events of early 2011 in the
MENA region have led us to be more cautious on the short-term
outlook for our Branded business. We are very optimistic about the
longer-term opportunities that economic reform can bring and our
commitment to the MENA region has not changed. We continue to
believe in the excellent long-term growth potential of the MENA
region and will continue to invest in building our unique local
presence, both organically and through acquisitions.
We are confident that we can continue to deliver strong
performances in our Injectables and Generics businesses. We have
made significant investments in these businesses in recent years,
we now have very experienced management teams in place and we see
numerous opportunities for growth. We also have the integration of
the Baxter's Multi-Source Injectables business to look forward to
and the transformation this business will bring to both our global
Injectables and US businesses."
Enquiries
Hikma Pharmaceuticals PLC
Susan Ringdal, Investor Relations Director +44 (0)20 7399
2760
Financial Dynamics +44 (0)20 7831 3113
Ben Atwell /Julia Phillips/Jonathan Birt/Matthew Cole
About Hikma
Hikma Pharmaceuticals PLC is a fast growing multinational
pharmaceutical group focused on developing, manufacturing and
marketing a broad range of both branded and non-branded generic and
in-licensed products. Hikma's operations are conducted through
three businesses: "Branded", "Injectables" and "Generics" based
principally in the Middle East and North Africa ("MENA") region,
where it is a market leader, the United States and Europe. In 2010,
Hikma achieved revenues of $731 million and profit attributable to
shareholders of $99 million.
A meeting for analysts and investors will be held today at
09:30am GMT at Financial Dynamics, Holborn Gate, 26, Holborn Gate
London WC2A 1PB. A live webcast of the meeting will be available at
www.hikma.com. In addition, we will be holding a conference call
for US investors at 1.30pm GMT on +1 866 966 9439 (US only) or +44
(0) 1452 555 566 (rest of world), conference ID: 51687727. A
recording of both meeting and call will be available on the Hikma
website.
Business and financial review
Group performance
Revenue for the Group increased by 14.8% to $730.9 million,
compared to $636.9 million in 2009. On a constant currency basis,
Group revenues increased by 16.0%. During the year, our US generics
business performed extremely well driven by a strong performance in
its core business and exceptionally strong sales from specific
market opportunities. Our Branded business continued to deliver
double digit growth and we made good progress in our Injectables
business, particularly in the US.
Revenue by segment 2010 2009
Branded 53.9% 55.4%
Injectables 21.5% 22.6%
Generics 23.9% 21.2%
Others 0.7% 0.8%
Revenue by region 2010 2009
MENA 61.1% 63.5%
US 28.0% 24.0%
Europe and Rest of
World 10.9% 12.5%
The Group's gross profit increased by 17.4% to $357.3 million,
compared to $304.4 million in 2009. Group gross margin was 48.9%,
compared to 47.8% in 2009. This improvement primarily reflects the
exceptional improvement in gross profit in our Generics
business.
Group operating expenses grew by 12.7% to $222.2 million,
compared to $197.1 million in 2009. As a percentage of sales, Group
operating expenses decreased slightly to 30.4% compared to 31.0% in
2009. The following paragraphs address the Group's main operating
expenses.
Group sales and marketing expenses grew more slowly than Group
revenues during the year, increasing by 8.8% to $106.7 million,
compared to $98.1 million in 2009. Consequently sales and marketing
expenses decreased as a percentage of sales to 14.6% in 2010,
compared to 15.4% in 2009. This reflects the strong performance in
our Generics business, with its relatively lower sales and
marketing expenses as a percentage of sales, and economies of scale
and reduced costs in our global Injectables business.
General and administrative expenses increased by 27.1% to $84.8
million. As a percentage of sales, general and administrative
expenses increased to 11.6% in 2010, compared to 10.5% in 2009.
Excluding $7.7 million in one-off costs related to the acquisition
of the Tunisian company Ibn Al Baytar, the Algerian company Al Dar
Al Arabia and Baxter's Multi Source US Injectables business,
general and administrative expenses were flat as a percentage of
sales at 10.5%. This was achieved through good control of costs
across the Group and despite an increase in corporate expenses
related to the strengthening of the corporate management team and
an increase in employee benefits.
In line with our strategy to increase investment in R&D
across the Group, R&D grew by 40.2% to $23.6 million. Total
investment in R&D represented 3.2% of Group revenue, compared
to 2.6% in 2009. This reflects increased investment in product
development for the US market and for our global Injectables
portfolio. We expect to continue to increase our investment in
R&D as a percentage of sales as we work to develop our global
product portfolio.
Other net operating expenses declined on a reported basis by
$8.3 million to $7.2 million in 2010. Increases in provisions for
slow moving items and foreign exchange losses were more than offset
by non-recurring gains arising from the revaluation of the
previously held interests in the Tunisian company Ibn Al Baytar and
the Algerian company Al Dar Al Arabia, gains on the sale of
intangible assets, and other product related income.
Operating profit for the Group increased by 25.9% to $135.1
million, compared to $107.3 million in 2009. Group operating margin
improved by nearly two percentage points to 18.5%, compared to
16.8% in 2009.
Branded
2010 highlights:
-- Strong second half performance across the MENA region
delivers full year revenue growth of 12.9% in constant currency
-- Successful completion of acquisitions in Tunisia and Algeria,
strengthening our presence and capabilities in the MENA region
-- Excellent progress in the rollout of key in-licensed
products
Branded revenues increased by 11.8% in 2010 to $394.2 million,
compared to $352.7 million in 2009. In constant currency, Branded
revenues increased by 12.9%. Ibn Al Baytar, the Tunisian business
acquired at the end of March 2010, contributed $11.4 million in
sales during the period.
During the year we continued to focus on new product promotion,
developing our market position in leading products and therapeutic
areas, and improving the credit quality of our customer base. These
efforts are delivering results across our portfolio of branded
generic and in-licensed products.
We successfully completed two acquisitions(1) in 2010,
strengthening our presence and capabilities in the MENA region. In
March, we took a controlling equity interest in the Tunisian
pharmaceutical company Societe D'Industries Pharmaceutiques Ibn Al
Baytar, enabling us to accelerate our penetration of the Tunisian
market. In April, the Group agreed to acquire the remaining 50% of
the issued share capital that we did not already own of Al Dar Al
Arabia in Algeria. The Al Dar Al Arabia plant is expected to be
completed by the end of 2011. It will double Hikma's local
manufacturing capacity in Algeria and will significantly enhance
our competitive position in the Algerian market.
1 For more details on these acquisitions, please see note 14 to
the financial information.
As expected, our business in Algeria picked up strongly in the
second half of the year. We are successfully managing the recent
regulatory changes by increasing the number of products
manufactured locally (from 54 in 2009 to 67 at the end of 2010) and
by successfully promoting our higher value branded generics as well
as our in-licensed products.
Our other key markets also performed well. We delivered strong
revenue growth in Egypt, where sales were driven by newly launched
products and by our new cardiovascular sales team. We achieved
excellent growth in Iraq, where investment in the sales force and
our focus on promotion in the private market is delivering results
in this developing market. Good performances were also achieved in
Saudi Arabia and across the GCC (Gulf Co-Operation Council)
countries. While sales in Jordan continued to be impacted by the
restructuring of our distribution channels, we are now moving
towards more optimal direct distribution to our pharmacist
customers and believe that this positions us well for 2011.
Revenue from in-licensed products grew by 14.7%(2) to $159.2
million, representing 40.4% of Branded sales, up from 39.4% in
2009. Key in-licensed products such as Blopress(R) and Actos(R)
have performed extremely well, particularly in Algeria, Saudi
Arabia and Egypt.
2 2009 in-licensed sales were $138.9 million reflecting a
reclassification of products.
We continue to develop our portfolio of in-licensed products,
demonstrating our position as the partner of choice in the MENA
region. The strategic partnership with Celltrion that we agreed in
April 2010 was a major achievement. Through this partnership, we
will introduce nine biosimilar products, including four for
oncology, into the MENA markets. With Celltrion's unique biosimilar
portfolio and our strong reputation for quality, we will be in an
excellent position to lead the market in these important products
in the MENA region.
In addition, we signed a further three licensing agreements:
with Piramal Healthcare for sevoflurane, an inhalation anaesthetic,
and with Sirao for Infasurf(R), their leading respiratory product -
both for the MENA region; and with Engelhard Arzneimittel for
Prospan(R) cough medicine for Algeria, Tunisia, Sudan and
Libya.
As a result of all of our efforts during the year, Hikma remains
the largest regional pharmaceutical company and the fifth(3)
largest pharmaceutical company overall in the MENA region, with a
market share of 3.7% for the 12 months through December 2010.
3 all market data sourced from IMS Health, YTD December 2010.
Private retail sales only include Algeria, Jordan, Kuwait, Egypt,
Tunisia, Morocco, UAE, Lebanon and Saudi Arabia.
In 2010, the Branded business launched a total of 61 products
across all markets, including 8 new compounds and 14 new dosage
forms and strengths. The Branded business also received 95
regulatory approvals across the region, including 16 for new
compounds.
Gross profit in the Branded business increased by 8.4% to $203.4
million, compared to $187.6 million in 2009. The Branded business
gross margin declined to 51.6%, compared to 53.2% in 2009. This
reflects price declines on locally manufactured products in Algeria
and the strengthening of the Japanese Yen, which increased raw
material costs.
Operating profit in the Branded business increased by 7.9% to
$98.7 million, compared to $91.4 million in 2009. Operating margin
was 25.0%, compared to 25.9% in 2009. This includes a non-recurring
gain of $7.2 million arising from the revaluation of the previously
held interests in the Tunisian company Ibn Al Baytar and the
Algerian company Al Dar Al Arabia and $7.7 million in foreign
exchange losses.
Injectables
2010 highlights:
-- Injectables revenues up 12.1% in constant currency driven by
excellent growth in the US
-- Excellent improvement in Injectables operating margin, to
15.1% from 10.6%
-- Transformation of our global Injectables business through the
agreement to acquire Baxter's Multi-Source Injectables business
Revenue in our global Injectables business increased by 9.3% to
$157.4 million compared to $144.1 million in 2009. In constant
currency, Injectables revenues increased by 12.1%.
Injectables revenue by
region 2010 2009
Europe 39.8% 45.0%
US 19.0% 11.8%
MENA 41.2% 43.2%
US Injectables sales reached $29.9 million, up 75.9% from $17.0
million in 2009. This excellent performance was driven primarily by
the successful launch of new products and good demand for existing
products. An increased demand for contract manufacturing also
contributed to this performance.
In 2010, our injectable manufacturing facility in Germany, which
produces lyophilized and liquid injectable products for both
oncology and non-oncological uses, was inspected and approved by
the US FDA. This represents an important step in the process of
registering our oncology products in the US and reinforces our
excellent track record for quality. This was followed in December
by an FDA approval for irinotecan - our first oncology ANDA
approval for the US.
In the MENA region, Injectables sales picked up in the second
half of 2010, enabling us to close the year up 4.1% with sales of
$64.9 million compared to $62.3 million in 2009. This increase is
attributed to strong growth in Algeria, our newly launched oncology
products and a good performance in the tender market in the second
half of the year.
European Injectables sales decreased by 3.2% to $62.7 million in
2010 compared to $64.8 million in 2009. In constant currency,
European sales increased slightly to $65.9 million, reflecting our
ability to offset significant price declines in most of our
European markets, including declines driven by the supplementary
reimbursement scheme implemented in Germany, with increased volumes
from existing products and from new contract manufacturing
opportunities.
In 2010, the Injectables business launched a total of 36
products across all markets, including 12 new compounds and 21 new
dosage forms and strengths. The Injectables business also received
a total of 131 regulatory approvals across all regions and markets,
including 44 in MENA, 77 in Europe and 10 in the US.
Injectables gross profit grew by 12.9 % to $71.0 million,
compared to $62.9 million in 2009, with gross margin increasing to
45.1%, compared to 43.7% in 2009. The increase in margin reflects
growth in our own product sales and in contract manufacturing and
increasing economies of scale.
Injectables operating profit increased by 54.7% to $23.7
million, compared to $15.3 million in 2009. Injectables operating
margin improved to 15.1% in 2010, up from 10.6% in 2009. This
increase reflects our strong performance in the US and a better
control of costs in Europe and was achieved despite an increased
investment in R&D.
On 29 October 2010, we agreed to acquire the US generic
injectables business of Baxter Healthcare Corporation for a cash
consideration of $112 million. This acquisition will transform our
Injectables business, doubling the size of our global injectable
sales, while at the same time doubling our total sales in the US
market, and positioning Hikma, through our wholly-owned subsidiary
West-Ward Pharmaceutical Corp. ('West-Ward'), as the second largest
supplier by volume of generic injectables in the US market. The
Multi-Source Injectables business will bring a portfolio of 41
products including several DEA controlled substances and is
estimated to have generated in excess of $180 million in annual
revenue in 2010.
Generics
2010 highlights:
-- Generics revenues up 29.2% to $174.5 million
-- Robust demand across the core product portfolio supports the
underlying business
-- Specific market opportunities enhance segment results
Revenue in our Generics business increased by 29.2% to $174.5
million, compared to $135.1 million in 2009. This performance
reflects strong demand for our core products as well as a
substantial increase in sales resulting from our ability to take
advantage of specific market opportunities.
Since mid-2008 we have focused on improving service levels,
leveraging our quality reputation and optimising our manufacturing
capacity to meet market needs. In 2010 these actions enabled us to
deliver solid growth in revenues from our core product
portfolio.
We were also able to take advantage of some specific market
opportunities. The most notable relates to the sale of colchicine,
an oral drug recommended for the treatment of gout. This
opportunity was finite and on 30 September 2010, West-Ward
discontinued sales of oral colchicine to comply with the regulatory
requirements of the US Food and Drug Administration.
The Generics segment gross profit increased by 55.7% to $81.8
million, compared to $52.5 million in 2009. Gross margin reached
46.9%, up from 38.9% in 2009. Consequently, the Generics segment
achieved an operating profit of $51.1 million compared to $25.0
million in 2009. Generic operating margin grew from 18.5% to 29.3%
in 2010. This significant improvement in both the gross and
operating profit reflects the exceptional performance of colchicine
as well as a good performance from our core product portfolio.
In 2010, the Generics business launched 2 new compounds in 3 new
dosage forms and strengths and received 4 new product
approvals.
Other businesses
Other businesses primarily comprise Arab Medical Containers, a
manufacturer of pharmaceutical packaging, and International
Pharmaceuticals Research Centre, which conducts bio-equivalency
studies. These businesses, which supply Group operations and third
parties, had aggregate revenues of $4.8 million, compared with
aggregate revenue of $5.1 million in 2009.
These Other businesses delivered an operating loss of $2.9
million in 2010, compared to an operating loss of $2.3 million in
2009. The slight increase in loss can be attributed to an increase
in overheads in our Chemicals division.
Research & Development
4 Products are defined as pharmaceutical compounds sold by the
Group. New compounds are defined as pharmaceutical compounds not
yet launched by the Group and existing compounds being introduced
into a new segment.
The Group's product portfolio continues to grow. In 2010 we
launched 22 new compounds, expanding the Group portfolio to 423
compounds in 817 dosage forms and strengths. We manufacture and/or
sell 46 of these compounds under-license.
Across all businesses and markets, a total of 100 products were
launched. In addition, the Group received 230 approvals.
Total marketed
products Products launched in 2010
------------- ----------------------- --------------------------------------
Total
launches
Dosage New dosage across all
forms and New forms and countries
Compounds strengths compounds strengths in 2010
Branded 253 485 8 14 61
Injectables 120 215 12 21 36
Generics 50 117 2 3 3
---------- ----------- ------------ ----------- -----------
Group 423 817 22 38 100
Products pending approval as
Products approved in 2010 at 31 Dec 2010
------------- ---------------------------------- ----------------------------------
Total
pending
Total approvals
approvals across
New across New all
dosage all dosage countries
New forms and countries New forms and as of 31
compounds strengths in 2010 compounds strengths Dec 2010
Branded 16 30 95 51 112 313
Injectables 11 21 131 43 55 286
Generics 4 4 4 25 34 34
---------- ---------- ---------- ---------- ---------- ----------
Group 31 55 230 119 201 633
5 Totals include all compounds and formulations that are either
launched, approved or pending approval across all markets.
To ensure the continuous development of our product pipeline, we
submitted 267 regulatory filings in 2010 across all regions and
markets. As of 31 December 2010, we had a total of 633 pending
approvals across all regions and markets.
At 31 December 2010, we had a total of 102 new products under
development, the majority of which should receive several marketing
authorisations for differing strengths and/or product forms over
the next few years.
Net finance expense
Net finance expense increased to $13.5 million, compared to
$12.3 million in 2009. The increase reflects higher bank charges,
related to requirements in Algeria to sell through confirmed
letters of credit.
Profit before tax
Profit before tax for the Group increased by 27.6% to $121.0
million, compared to $94.8 million in 2009.
Tax
The Group incurred a tax expense of $21.5 million in 2010,
compared to $15.5 million in 2009. The effective tax rate was
17.7%, compared to 16.3% in 2009, reflecting the impact of the
significant increase in profitability in the US.
Profit for the year
The Group's profit attributable to equity holders of the parent
increased by 27.2% to $98.8 million.
Earnings per share
Diluted earnings per share for the year to 31 December 2010 were
50.2 cents, up 25.2% from 40.1 cents in 2009.
Dividend
The Board has recommended a final dividend of 7.5 cents per
share (approximately 4.7 pence per share), which will make a
dividend for the full year of 13.0 cents per share, up from 11.0
cents per share in 2009, an increase of 18.2%. The proposed final
dividend will be paid on 26 May 2011 to shareholders on the
register on 15 April 2011, subject to approval by shareholders at
the Annual General Meeting.
Net cash flow from operating activities and investment
The Group continued to deliver significant improvements in
working capital in 2010, reducing its overall working capital cycle
by 25 days. This reflects our commitment to improve collections,
increase the factoring of receivables and optimise our supply
chain. Over the year, Group receivable days decreased by 16 days to
100 days as at 31 December 2010. Inventory days increased by 1 day
to 178 days and payable days improved by 10 days to 73 days.
Working capital improvements coupled with improved profitability
led to a significant increase in operating cash flow, particularly
in the MENA region and the US. Overall Group net cash flow from
operating activities grew by 21.7% to $144.8 million in 2010,
compared to $119.0 million in 2009.
Capital expenditures increased to $49.1 million, compared to
$37.0 million in 2009. In 2010, expenditure was focused on the
completion of our new lyophilisation plant in Portugal, the
expansion of our manufacturing capacity in Algeria and Egypt,
continuous investment in IT infrastructure and overall maintenance
capex across all of our facilities. We expect to increase capital
expenditure in 2011 as we continue to expand our manufacturing
capacity in the MENA region to support demand for our global
products.
During the year, other Group investing activities included
investments of $4.4 million and $18.6 million for the acquisitions
of Ibn Al Baytar and Al Dar Al Arabia, respectively, and advanced
payments related to the acquisition of products and product related
technologies.
Balance sheet
As a result of working capital improvements, net debt decreased
from $116.9 million as at 31 December 2009 to $101.1 million as at
31 December 2010, keeping the Group in a very strong financing
position.
We expect to fund the purchase of MSI and associated working
capital requirements with new debt financing. This financing has
already been arranged and will increase our total debt by around
$140 million.
2011 Outlook (at constant currency)
We expect to deliver Group revenue growth of around 7% in 2011
and gross margin of around 47%, excluding the Multi-Source
Injectables business.
We started 2011 with double digit growth expectations for our
Branded business. Recent events in the MENA region, particularly in
Egypt, Libya and Tunisia, now require us to be more cautious in our
ability to achieve this. To date, we have experienced disruptions
in manufacturing, sales and distribution. While our focus in each
affected market is on returning to 'business as usual' as soon as
possible, it is very difficult to fully assess the potential for
further disruptions. With this in mind, we now anticipate Branded
revenue growth of around 7% for the year, which takes into
consideration the disruption we have experienced to date and
assumes the affected markets return to normal by the middle of
2011. We continue to believe in the excellent long-term growth
potential of the MENA region.
We are confident that we can continue to deliver a strong
performance in our global Injectables business and we are excited
about the opportunities that the Multi-Source Injectables business
will bring. We now anticipate this acquisition will close by the
end of April.
We expect that our Generics business will perform well in 2011
and that our commitment to quality and service will continue to
differentiate us in the competitive US market. We estimate 2011
Generics sales of around $160 million and mid-teen operating
margin.
Responsibility statement
The responsibility statement below has been prepared in
connection with the company's full annual report for the year ended
31 December 2010. Certain parts thereof are not included within
this announcement.
We confirm to the best of our knowledge:
-- The financial statements, prepared in accordance with the
International Financial Reporting Standards as adopted by the EU,
give a true and fair view of the assets, liabilities, financial
position and profit or loss of the company and the undertakings
included in the consolidation taken as a whole; and
-- The Business review, which is incorporated into the
Directors' report, includes a fair review of the development and
performance of the business and the position of the Company and the
undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and
uncertainties they face.
By order of the Board
Said Darwazah Khalid Nabilsi
Chief Executive Officer Chief Financial Officer
15 March 2011
Cautionary statement
This preliminary announcement has been prepared solely to
provide additional information to shareholders to assess the
Group's strategies and the potential for those strategies to
succeed. It should not be relied on by any other party or for any
other purpose.
Forward looking statements
Certain statements in this announcement are forward-looking
statements - using words such as "intends", "believes",
"anticipates" and "expects". Where included, these have been made
by the Directors in good faith based on the information available
to them up to the time of their approval of this announcement. By
their nature, forward-looking statements are based on assumptions
and involve inherent risks and uncertainties that could cause
actual results or events to differ materially from those expressed
or implied by the forward-looking statements, and should be treated
with caution. These risks, uncertainties or assumptions could
adversely affect the outcome and financial effects of the plans and
events described in this announcement. Forward-looking statements
contained in this announcement regarding past trends or activities
should not be taken as a representation that such trends or
activities will continue in the future. You should not place undue
reliance on forward-looking statements, which speak as only of the
date of the approval of this announcement.
Except as required by law, the Company is under no obligation to
update or keep current the forward-looking statements contained in
this announcement or to correct any inaccuracies which may become
apparent in such forward-looking statements.
Consolidated statement of comprehensive income for the year
ended 31 December 2010
Note 2010 2009
Continuing operations $000 $000
---------- ----------
Revenue 3 730,936 636,884
Cost of sales 3 (373,592) (332,459)
---------- ----------
Gross profit 3 357,344 304,425
---------- ----------
Sales and marketing costs (106,673) (98,083)
General and administrative expenses (84,755) (66,677)
Research and development costs (23,608) (16,843)
Other operating expenses (net) (7,213) (15,529)
---------- ----------
Total operating expenses (222,249) (197,132)
Adjusted operating profit 143,025 114,742
Exceptional items:
- Acquisition related expenses 4 (7,705) -
- Gains on revaluation of previously
held equity interests 4 7,176 -
Intangible amortisation* 4 (7,401) (7,449)
-------------------------------------- ----- ---------- ----------
Operating profit 3 135,095 107,293
Finance income 346 514
Finance expense (13,856) (12,827)
Other expense (net) (603) (193)
---------- ----------
Profit before tax 120,982 94,787
Tax 5 (21,455) (15,469)
Profit for the year 99,527 79,318
========== ==========
Attributable to:
Non-controlling interests 678 1,635
Equity holders of the parent 98,849 77,683
---------- ----------
99,527 79,318
========== ==========
Earnings per share (cents)
Basic 7 51.4 40.9
========== ==========
Diluted 7 50.2 40.1
========== ==========
Adjusted basic 7 53.6 44.1
========== ==========
Adjusted diluted 7 52.4 43.2
========== ==========
Cumulative effect of change in fair
value
of available for sale investments 75 2
Cumulative effect of change in fair
value
of financial derivatives (256) (202)
Exchange difference on translation
of foreign operations (19,532) 1,364
---------- ----------
Total comprehensive income before
tax relating to components of other
comprehensive income 79,814 80,482
Total comprehensive income for the
year 79,814 80,482
========== ==========
Attributable to:
Non-controlling interests (1,023) 1,586
Equity holders of the parent 80,837 78,896
---------- ----------
79,814 80,482
========== ==========
* Intangible amortisation comprises the amortisation on
intangible assets other than software.
Consolidated balance sheet at 31 December 2010
Note 2010 2009
Non-current assets $000 $000
---------- ----------
Intangible assets 269,120 255,696
Property, plant and equipment 317,463 283,371
Interest in joint venture - 5,451
Deferred tax assets 23,288 18,793
Available for sale investments 477 542
Financial and other non-current
assets 11,357 2,270
---------- ----------
621,705 566,123
---------- ----------
Current assets
Inventories 8 182,192 160,509
Trade and other receivables 9 228,703 226,841
Collateralised cash 3,573 2,334
Cash and cash equivalents 62,718 65,663
Other current assets 929 1,251
478,115 456,598
---------- ----------
Total assets 1,099,820 1,022,721
========== ==========
Current liabilities
Bank overdrafts and loans 81,015 60,317
Obligations under finance
leases 2,251 1,826
Trade and other payables 10 127,555 107,618
Income tax provision 12,621 14,857
Other provisions 8,641 6,153
Other current liabilities 20,540 13,671
252,623 204,442
---------- ----------
Net current assets 225,492 252,156
---------- ----------
Non-current liabilities
Long-term financial debts 78,040 116,119
Deferred income 335 494
Obligations under finance
leases 6,118 6,675
Deferred tax liabilities 12,404 11,734
96,897 135,022
---------- ----------
Total liabilities 349,520 339,464
========== ==========
Net assets 750,300 683,257
========== ==========
Consolidated balance sheet at 31 December 2010
Note 2010 2009
$000 $000
-------- --------
Equity
Share capital 11 34,525 34,236
Share premium 275,968 272,785
Own shares (2,220) (2,203)
Other reserves 435,649 371,067
-------- --------
Equity attributable to equity
holders of the parent 743,922 675,885
Non-controlling interests 6,378 7,372
-------- --------
Total equity 750,300 683,257
======== ========
The financial statements of Hikma Pharmaceuticals PLC,
registered number 5557934, were approved by the board of directors
and signed on its behalf by:
Said Darwazah Director
Mazen Darwazah Director
15 March 2011
Consolidated statement of changes in equity for the year ended
31 December 2010
Total equity
attributable
to equity
Merger Revaluation Translation Retained Total Share Share Own shareholders Non-controlling Total
reserve reserves reserves earnings reserves capital premium shares of the interests equity
$000 $000 $000 $000 $000 $000 $000 $000 parent $000 $000 $000
-------- ------------ ------------ --------- --------- --------- -------- --------- ------------- ---------------- ---------
Balance
at 1
January
2009 33,920 4,447 4,338 257,798 300,503 33,857 269,973 (1,124) 603,209 5,786 608,995
Profit
for the
year - - - 77,683 77,683 - - - 77,683 1,635 79,318
Cumulative
effect
of change
in fair
value
of available
for sale
investments - - - 2 2 - - - 2 - 2
Cumulative
effect
of change
in fair
value
of financial
derivatives - - - (202) (202) - - - (202) - (202)
Realisation of
revaluation
reserve - (181) - 181 - - - - - - -
Currency
translation
gain/(loss) - - 1,413 - 1,413 - - - 1,413 (49) 1,364
-------- ------------ ------------ --------- --------- --------- -------- --------- ------------- ---------------- ---------
Total
comprehensive
income
for the
year - (181) 1,413 77,664 78,896 - - - 78,896 1,586 80,482
Issue
of equity
shares - - - - - 379 2,812 - 3,191 - 3,191
Acquisition
of own
shares - - - - - - - (1,079) (1,079) - (1,079)
Cost
of equity
settled
employee
share
scheme - - - 4,616 4,616 - - - 4,616 - 4,616
Current and
deferred tax
arising on
share-based
payments - - - 3,170 3,170 - - - 3,170 - 3,170
Dividends
on ordinary
shares
(note
6) - - - (16,118) (16,118) - - - (16,118) - (16,118)
-------- ------------ ------------ --------- --------- --------- -------- --------- ------------- ---------------- ---------
Balance
at 31
December
2009
and 1
January
2010 33,920 4,266 5,751 327,130 371,067 34,236 272,785 (2,203) 675,885 7,372 683,257
Profit
for the
year - - - 98,849 98,849 - - - 98,849 678 99,527
Cumulative
effect
of change
in fair
value
of available
for sale
investments - - - 75 75 - - - 75 - 75
Cumulative
effect
of change
in fair
value
of financial
derivatives - - - (256) (256) - - - (256) - (256)
Realisation of
revaluation
reserve - (181) - 181 - - - - - - -
Currency
translation
loss - - (17,831) - (17,831) - - - (17,831) (1,701) (19,532)
-------- ------------ ------------ --------- --------- --------- -------- --------- ------------- ---------------- ---------
Total
comprehensive
income
for the
year - (181) (17,831) 98,849 80,837 - - - 80,837 (1,023)3) 79,814
Issue
of equity
shares - - - - - 289 3,183 - 3,472 - 3,472
Issued
of own
shares - - - - - - - (107) (107) - (107)
Cost
of equity
settled
employee
share
scheme - - - 4,473 4,473 - - - 4,473 - 4,473
Total equity
attributable
to equity
Merger Revaluation Translation Retained Total Share Share Own shareholders Non-controlling Total
reserve reserves reserves earnings reserves capital premium shares of the interests equity
$000 $000 $000 $000 $000 $000 $000 $000 parent $000 $000 $000
-------- ------------ ------------ --------- --------- -------- ---------- -------- ------------- ----------------- ---------
Exercise
of employees
long
term
incentive
plan - - - (90) (90) - - 90 - - -
Current and
deferred tax
arising on
share-based
payments - - - 2,435 2,435 - - - 2,435 - 2,435
Dividends
on ordinary
shares
(note
6) - - - (23,073) (23,073) - - - (23,073) - (23,073)
Acquisition of
subsidiaries - - - - - - 29 29
-------- ------------ ------------ --------- --------- -------- ---------- -------- ------------- ----------------- ---------
Balance
at 31
December
2010 33,920 4,085 (12,080) 409,724 435,649 34,525 275,968 (2,220) 743,922 6,378 750,300
======== ============ ============ ========= ========= ======== ========== ======== ============= ================= =========
Consolidated cash flow statement for the year ended 31 December
2010
Note 2010 2009
$000 $000
--------- ---------
Net cash from operating activities 12 144,835 118,979
--------- ---------
Investing activities
Purchases of property, plant and equipment (49,121) (35,170)
Proceeds from disposal of property, plant
and equipment 1,556 1,080
Purchase of intangible assets (4,074) (5,213)
Proceeds from disposal of intangible
assets 566 1,316
Investment in joint venture - 2
Investment in financial and other non
current assets (10,800) (193)
Proceeds from disposal of available for
sale investments 140 -
Acquisition of subsidiary undertakings
net of cash acquired (23,000) -
Finance income 346 514
--------- ---------
Net cash used in investing activities (84,387) (37,664)
--------- ---------
Financing activities
Increase in collateralised cash (1,140) (1,515)
Increase in long-term financial debts 19,045 39,275
Repayment of long-term financial debts (59,177) (33,570)
Increase/(decrease) in short-term borrowings 14,147 (56,983)
(Decrease)/increase in obligations under
finance leases (616) 1,784
Dividends paid (23,073) (16,118)
Purchase of own shares - (1,079)
Interest paid (13,754) (13,461)
Proceeds from issue of new shares 3,365 3,191
Net cash used in financing activities (61,203) (78,476)
--------- ---------
Net (decrease)/increase in cash and cash
equivalents (755) 2,839
Cash and cash equivalents at beginning
of year 65,663 62,727
Foreign exchange translation movements (2,190) 97
--------- ---------
Cash and cash equivalents at end of year 62,718 65,663
========= =========
1. Basis of preparation
The financial information set out above does not constitute the
company's statutory accounts for the years ended 31 December 2010
or 2009, but is derived from those accounts. Statutory accounts for
2009 have been delivered to the Registrar of Companies and those
for 2010 will be delivered following the company's annual general
meeting. The auditors have reported on those accounts; their
reports were unqualified, did not draw attention any matters by way
of emphasis without qualifying their report and did not contain
statements under S498 (2) or (3) of the Companies Act 2006. Hikma
Pharmaceuticals PLC's consolidated financial statements are
prepared in accordance with International Financial Reporting
Standards (IFRSs) issued by the International Accounting Standards
Board. The financial statements have also been prepared in
accordance with IFRSs adopted for use in the European Union and
therefore comply with Article 4 of the EU IAS Regulation. The
financial statements have been prepared under the historical cost
convention, except for the revaluation to market of certain
financial assets and liabilities. The preliminary announcement is
based on the Company's financial statements.
The Group's previously published financial statements were also
prepared in accordance with International Financial Reporting
Standards. These International Financial Reporting Standards have
been subject to amendment and interpretation by the International
Accounting Standards Board and the financial statements presented
for the years ended 31 December 2009 and 31 December 2010 have been
prepared in accordance with those revised standards. Unless stated
otherwise these policies are in accordance with the revised
standards that have been applied throughout the year and prior
years presented in the financial statements.
The presentational and functional currency of Hikma
Pharmaceuticals PLC is the US Dollar as the majority of the
Company's business is conducted in US Dollars (USD).
Going Concern
Although the current economic and political conditions may
affect short-term demand for the Company's products, as well as
place pressure on our customers and suppliers, the Directors
believe that the Group's geographic spread, product diversity and
large customer and supplier base substantially mitigate these
risks. In addition, the Group operates in the relatively defensive
generic pharmaceuticals industry which the Directors expect to be
less affected compared to other industries.
The Group has reduced its year end net debt position to $101
million (2009: $117 million) following strong cash generation from
operations. Operating cashflow in 2010 was $145 million. The Group
has $265 million of undrawn banking facilities having allowed for
the US acquisition. These facilities are well diversified across
the operating subsidiaries of the Group and are with a number of
financial institutions. The Group's forecasts, taking into account
reasonable possible changes in trading performance, facility
renewal sensitivities and maturities of long-term debt, show that
the Group should be able to operate well within the levels of its
facilities and their related covenants.
After making enquiries, the Directors believe that the Group is
adequately placed to manage its business and financing risks
successfully despite the current uncertain economic and political
outlook. The Directors have formed a judgement that there is
reasonable expectation that the Group has adequate resources to
continue in operational existence for the foreseeable future. The
Directors therefore continue to adopt the going concern basis in
preparing the financial statements.
2. Adoption of new and revised standards
The following new and revised Standards and Interpretations have
been adopted in the current year. With exception to IFRS 3(2008)
Business Combinations and IAS 27(2008) Consolidated and Separate
Financial Statements (see note 1), their adoption has not had any
significant impact on the amounts reported in these financial
statements but may impact the accounting for future transactions
and arrangements.
IFRS 3(2008) Business These standards have introduced a number of
Combinations; changes in the accounting for business
IAS 27(2008) Consolidated combinations when acquiring a subsidiary or an
and Separate Financial associate. IFRS 3(2008) has also introduced
Statements; additional disclosure requirements for
IAS 28(2008) Investments acquisitions.
in Associates
--------------------------- -------------------------------------------------
Amendment to IFRS IFRS 2 has been amended, following the issue of
2 Share-based Payment IFRS 3(2008), to confirm that the contribution
of a business on the formation of a joint
venture and common control transactions are not
within the scope of IFRS 2.
--------------------------- -------------------------------------------------
Amendment to IAS IAS 39 has been amended to state that options
39 Financial Instruments: contracts between an acquirer and a selling
Recognition and shareholder to buy or sell an acquiree that will
Measurement result in a business combination at a future
acquisition date are not excluded from the scope
of the standard.
--------------------------- -------------------------------------------------
At the date of authorisation of these financial statements, the
following Standards and Interpretations which have not been applied
in these financial statements were in issue but not yet effective
(and in some cases had not yet been adopted by the EU):
IFRS 9 Financial Instruments
IAS 24 (amended) Related Party Disclosures
IAS 32 (amended) Classification of Rights Issues
IFRIC 19 Extinguishing Financial Liabilities with Equity
Instruments
IFRIC 14 (amended) Prepayments of a Minimum Funding
Requirement
Improvements to IFRSs (May 2010)
The directors do not expect that the adoption of the other
standards listed above will have a material impact on the financial
statements of the Group in future periods.
Changes in accounting policy
The same accounting policies, presentation and methods of
computation are followed in the condensed set of financial
statements as applied in the Group's latest annual audited
financial statements, except as described below.
In the current financial year, the Group has adopted
International Financial Reporting Standard 3 "Business
Combinations" (revised 2008) and International Accounting Standard
27 "Consolidated and Separate Financial Statements" (revised
2008).
The most significant changes to the Group's previous accounting
policies for business combinations are as follows:
-- Acquisition related costs which previously would have been
included in the cost of a business combination are included in
other operating income/(expense) as they are incurred;
-- Any previously held equity interest in the entity acquired is
remeasured to fair value at the date of obtaining control, with any
resulting gain or loss recognised as a profit or loss;
-- Any changes in the Group's ownership interest subsequent to
the date of obtaining control are recognised directly in equity,
with no adjustment to goodwill; and
-- Any changes to the cost of an acquisition, including
contingent consideration, resulting from events after the date of
acquisition are recognised as a profit or loss. Previously, such
changes resulted in an adjustment to goodwill.
The revised standards have been applied to the acquisition of
Societe D'industries Pharmaceutiques Ibn Al Baytar S.A. (Ibn Al
Baytar) and Al Dar al Arabia as described in note 14. The result
has been a total gain of USD 7,176,000 due to the remeasurement to
fair value of the previously held equity interests and transaction
costs totalling of USD 2,306,000 have been expensed to general and
administrative expenses. Both the gain and the transaction costs
have been classified as exceptional item as described in note
4.
Any adjustments to contingent consideration for acquisitions
made prior to 1 January 2010 which result in an adjustment to
goodwill continue to be accounted for under IFRS 3(2004) and IAS 27
(2005), for which the accounting policies can be found in the
Group's latest annual audited financial statements. There have been
no such adjustments into the year ended 31 December 2010.
Exceptional items are defined as those that are material in
nature or amount and are non-recurring.
These items are disclosed separately in the condensed
consolidated statement of comprehensive income to assist in the
understanding of the financial performance of the Group.
3. Business and geographical segments
For management purposes, the Group is currently organised into
three operating divisions - Branded, Injectables and Generics.
These divisions are the basis on which the Group reports its
segment information.
The Group discloses underlying operating profit as the measure
of segment result as this is the measure used in the
decision-making and resource allocation process of the chief
operating decision maker, who is the Group's Chief Executive
Officer.
Information regarding the Group's operating segments is reported
below.
The following is an analysis of the Group's revenue and results
by reportable segment in 2010:
Year ended
31 December 2010 Branded Injectables Generic Others Group
$000 $000 $000 $000 $000
---------- ------------ --------- -------- ----------
Revenue 394,166 157,439 174,491 4,840 730,936
Cost of sales (190,733) (86,437) (92,710) (3,712) (373,592)
----------
Gross profit 203,433 71,002 81,781 1,128 357,344
---------- ------------ --------- -------- ----------
Adjusted segment
result 96,230 26,224 51,258 (2,889) 170,823
Exceptional items:
- Gains on
revaluation of
previously held
equity interests 7,176 - - - 7,176
Intangible
amortisation* (4,732) (2,500) (169) - (7,401)
------------------- ---------- ------------ --------- -------- ----------
Segment result 98,674 23,724 51,089 (2,889) 170,598
========== ============ ========= ========
Adjusted
Unallocated
corporate
expenses (27,798)
Exceptional items:
- Acquisition
related expenses (7,705)
------------------- ---------- ------------ --------- -------- ----------
Unallocated
corporate
expenses (35,503)
----------
Operating profit 135,095
Finance income 346
Finance expense (13,856)
Other expense
(net) (603)
----------
Profit before tax 120,982
Tax (21,455)
----------
Profit for the
year 99,527
==========
Attributable to:
Non-controlling
interests 678
Equity holders of
the parent 98,849
99,527
==========
* Intangible amortisation comprises the amortisation on
intangible assets other than software.
"Others" mainly comprise Arab Medical Containers Ltd,
International Pharmaceutical Research Center Ltd and the chemicals
division of Hikma Pharmaceuticals Ltd Jordan.
3. Business and geographical segments- continued
Unallocated corporate expenses are primarily made up of employee
costs, office costs, professional fees, donations, travel expenses
and acquisition related expenses.
Segment assets
and liabilities Corporate
2010 Branded Injectables Generic and others Group
$000 $000 $000 $000 $000
-------- ------------ -------- ------------ ----------
Additions to
property, plant
and equipment
(cost) 32,747 7,428 6,798 2,125 49,098
Acquisition of
subsidiary's
property, plant
and equipment
(net book
value) 24,437 - - - 24,437
Additions to
intangible
assets 2,147 1,902 5 20 4,074
Intangible assets
arising on
acquisition (net
book value) 28,066 - - - 28,066
Total property,
plant and
equipment and
intangible
assets (net book
value) 397,301 146,818 32,682 9,782 586,583
Depreciation 16,032 5,517 6,373 1,169 29,091
Amortisation
(including
software) 6,044 2,848 365 85 9,342
Balance sheet
Segment assets 748,353 184,039 141,599 25,829 1,099,820
======== ============ ======== ============ ==========
Segment
liabilities 232,855 77,217 18,551 20,897 349,520
======== ============ ======== ============ ==========
3. Business and geographical segments - continued
The following is an analysis of the Group's revenue and results
by reportable segment in 2009:
Year ended 31
December 2009
Branded Injectables Generic Others Group
$000 $000 $000 $000 $000
---------- ------------ --------- -------- ----------
Revenue 352,674 144,069 135,060 5,081 636,884
Cost of sales (165,066) (81,162) (82,524) (3,707) (332,459)
---------- ------------ --------- -------- ----------
Gross profit 187,608 62,907 52,536 1,374 304,425
---------- ------------ --------- -------- ----------
Adjusted segment
result 96,029 17,859 25,360 (2,345) 136,903
Exceptional items:
Intangible
amortisation* (4,580) (2,526) (343) - (7,449)
------------------- ---------- ------------ --------- -------- ----------
Segment result 91,449 15,333 25,017 (2,345) 129,454
========== ============ ========= ========
Unallocated
corporate
expenses (22,161)
Operating profit 107,293
Finance income 514
Finance expense (12,827)
Other expense
(net) (193)
----------
Profit before tax 94,787
Tax (15,469)
Profit for the
year 79,318
==========
Attributable to:
Non-controlling
interests 1,635
Equity holders of
the parent 77,683
79,318
==========
* Intangible amortisation comprises the amortisation on
intangible assets other than software.
"Others" mainly comprise Arab Medical Containers Ltd,
International Pharmaceutical Research Center Ltd and the chemicals
division of Hikma Pharmaceuticals Ltd Jordan.
Unallocated corporate expenses are primarily made up of employee
costs, office costs, professional fees, donations and travel
expenses in addition to acquisition related expenses.
3. Business and geographical segments - continued
Segment assets
and liabilities Corporate
2009 Branded Injectables Generic and others Group
$000 $000 $000 $000 $000
-------- ------------ -------- ------------ ----------
Additions to
property, plant
and equipment
(cost) 23,827 9,594 2,925 609 36,955
Additions to
intangible
assets 1,889 2,591 709 24 5,213
Total property,
plant and
equipment and
intangible
assets (net book
value) 341,548 157,938 30,815 8,766 539,067
Depreciation 14,715 4,730 4,567 1,187 25,199
Amortisation
(including
software) 5,509 2,956 434 50 8,949
Balance sheet
Segment assets 679,112 204,220 119,093 20,296 1,022,721
======== ============ ======== ============ ==========
Segment
liabilities 203,750 91,104 30,567 14,043 339,464
======== ============ ======== ============ ==========
3. Business and geographical segments - continued
The following table provides an analysis of the Group's sales by
geographical market, irrespective of the origin of the
goods/services:
Sales revenue
by
geographical
market
For the year
ended 31 December
2010 2009
$000 $000
---------- ---------
Middle East and North Africa 446,524 404,689
United States 204,389 152,406
Europe and Rest of the World 79,133 78,981
United Kingdom 890 808
---------- ---------
730,936 636,884
========== =========
The top selling markets are USA, Saudi Arabia and Algeria with
total sales of USD 204.4 million (2009: USD 152.4 million), USD
118.5 million (2009: USD 107.2 million) and USD 88.8 million (2009:
USD 74.5 million), respectively.
Included in the Group's total sales are sales of approximately
USD 99.4 million (2009: USD 92.8 million) which arose from sales to
the Group's largest client in Saudi Arabia.
The following is an analysis of the total non current assets
excluding deferred tax assets and an analysis of total assets by
the geographical area in which the assets are located:
Total non current
assets excluding
deferred tax asset Total assets as
as at 31 December at 31 December
---------------------- ----------------------
2010 2009 2010 2009
$000 $000 $000 $000
---------- ---------- ---------- ----------
Middle East and North Africa 417,553 357,945 766,822 690,170
Europe 146,844 157,938 185,945 205,758
United States 33,589 30,944 141,598 119,093
United Kingdom 431 503 5,455 7,700
598,417 547,330 1,099,820 1,022,721
========== ========== ========== ==========
4. Exceptional items and intangible amortisation
Exceptional items are disclosed separately in the statement of
comprehensive income to assist in the understanding of the Group's
underlying performance.
For the years ended
31 December
----------------------
2010 2009
$000 $000
---------- ----------
Acquisition related expenses (7,705) -
Gains on revaluation of previously held
equity interests 7,176 -
---------- ----------
Exceptional items (529) -
Intangible amortisation * (7,401) (7,449)
Exceptional items and intangible amortisation (7,930) (7,449)
Tax effect 3,666 1,531
---------- ----------
Impact on profit for the year (4,264) (5,918)
========== ==========
* Intangible amortisation comprises the amortisation on
intangible assets other than software.
Acquisition related expenses relate to transaction costs
incurred in acquiring Ibn Al Baytar, Al Dar Al Arabia and the
Baxter Multi-Source injectables business in the USA which is in the
process of completion. These are included in the unallocated
corporate expenses.
Gains on revaluation of previously held equity interests relate
to gains arising from the remeasurement to fair value of the
previously held equity interest in Ibn Al Baytar and Al Dar Al
Arabia. These are included within other operating expenses (net).
Further details are set out in note 14 "Acquisition of
subsidiaries".
5. Tax
For the years
ended 31 December
2010 2009
$000 $000
---------- ---------
Current tax:
UK current tax - 560
Double tax relief - (560)
Foreign tax 27,037 19,988
Prior year adjustments (691) 1,035
Deferred tax (4,891) (5,554)
---------- ---------
21,455 15,469
========== =========
UK corporation tax is calculated at 28% (2009: 28%) of the
estimated assessable profit made in the UK for the year.
Effective tax rate for the Group is 17.74% (2009: 16.32%).
Taxation for other jurisdictions is calculated at the rates
prevailing in the respective jurisdiction.
The charge for the year can be reconciled to profit before tax
per the statement of comprehensive income as follows:
For the years ended 31
December
2010 2009
$000 $000
------------------ --------------
Profit before tax: 120,982 94,787
------------------ --------------
Tax at the UK corporation tax rate
of 28% ( 2009: 28%) 33,875 26,540
Profits taxed at different rates (15,184) (15,776)
UK tax on dividend income - 560
Double tax relief offset - (560)
Permanent differences 853 3,643
Temporary differences for which no
benefit is recognised 2,602 27
Prior year adjustments (691) 1,035
Tax expense for the year 21,455 15,469
================== ==============
6. Dividends
2010 2009
$000 $000
------- -------
Amounts recognised as distributions
to equity holders in the year:
Final dividend for the year ended
31 December 2009 of 6.5 cents (2008:
4.0 cents) per share 12,473 7,575
Interim dividend for the year ended
31 December 2010 of 5.5 cents (2009:
4.5 cents) per share 10,600 8,543
------- -------
23,073 16,118
======= =======
The proposed final dividend for the year ended 31 December 2010
is 7.5 cents (2009: 6.5 cents) per share, bringing the total
dividends for the year to 13.0 cents (2009: 11.0 cents) per
share.
7. Earnings per share
Earnings per share are calculated by dividing the profit
attributable to equity holders of the parent by the weighted
average number of ordinary shares. The number of ordinary shares
used for the basic and diluted calculations are shown in the table
below. Adjusted basic earnings per share and adjusted diluted
earnings per share are intended to highlight the adjusted results
of the Group before exceptional items and intangible amortisation.
A reconciliation of the basic and adjusted earnings used is also
set out below:
For the years ended
31 December
2010 2009
$000 $000
---------- ----------
Earnings for the purposes of basic and
diluted earnings per share being net
profit attributable to equity holders
of the parent 98,849 77,683
========== ==========
Exceptional items (see note 4) 529 -
Intangible amortisation* 7,401 7,449
Tax effect of adjustments (3,666) (1,531)
Adjusted earnings for the purposes of
adjusted basic and diluted earnings per
share being adjusted net profit attributable
to equity holders of the parent 103,113 83,601
Number Number
Number of shares '000 '000
Weighted average number of Ordinary Shares
for the purposes of basic earnings per
share 192,304 189,757
Effect of dilutive potential Ordinary
Shares:
Share options 4,551 3,968
Weighted average number of Ordinary Shares
for the purposes of diluted earnings
per share 196,855 193,725
2010 2009
Earnings Earnings
per share per share
Cents Cents
Basic 51.4 40.9
Diluted 50.2 40.1
Adjusted basic 53.6 44.1
Adjusted diluted 52.4 43.2
*Intangible amortisation comprises the amortisation of
intangible assets other than software.
8. Inventories
2010 2009
$000 $000
------- -------
Finished goods 50,829 41,453
Work-in-progress 29,592 28,074
Raw and packing materials 81,864 79,040
Goods in transit 19,907 11,942
------- -------
182,192 160,509
Goods in transit include inventory held at third parties whilst
in transit between Group companies.
9. Trade and other receivables
As at 31 December
2010 2009
$000 $000
----------
Trade receivables 200,334 203,250
Prepayments 22,305 16,063
Value added tax recoverable 3,883 5,569
Interest receivable 223 49
Employee advances 1,958 1,910
----------
228,703 226,841
10. Trade and other payables
As at 31 December
2010 2009
$000 $000
---------
Trade payables 74,936 57,307
Accrued expenses 42,428 35,602
Employees' provident fund * 2,625 4,049
VAT and sales tax payables 452 3,033
Dividends payable ** 2,256 2,348
Social security withholdings 1,130 856
Income tax withholdings 2,074 1,456
Other payables 1,654 2,967
---------
127,555 107,618
* The employees' provident fund liability mainly represents the
outstanding contributions due to the Hikma Pharmaceuticals Limited
- Jordan retirement benefit plan, on which the fund receives 5%
interest.
** Dividends payable includes USD 2,072,000 (2009: USD
2,165,000) due to the previous shareholders of APM.
11. Share capital
Issued and fully
paid - included in
shareholders' equity:
2010 2009
Number Number
'000 $000 '000 $000
At 1 January 191,628 34,236 189,238 33,857
Issued during the
year 1,889 289 2,390 379
At 31 December 193,517 34,525 191,628 34,236
12. Net cash from operating activities
2010 2009
$000 $000
Profit before tax 120,982 94,787
Adjustments for:
Depreciation and amortisation of:
Property, plant and equipment 29,091 25,199
Intangible assets 9,342 8,949
Gain on revaluation of previously held
equity interests (7,176) -
Loss on disposal of property, plant
and equipment 376 236
Gain on disposal of intangible assets (162) (903)
Movement on provisions 2,488 761
Movement on deferred income (159) (201)
Cost of equity settled employee share
scheme 4,473 4,616
Finance income (346) (514)
Interest and bank charges 13,856 12,827
Cash flow before working capital 172,765 145,757
Change in trade and other receivables 10,689 (29,949)
Change in other current assets 322 (190)
Change in inventories (19,295) (8,278)
Change in trade and other payables 16,102 24,262
Change in other current liabilities (3,091) 3,164
Cash generated by operations 177,492 134,766
Income tax paid (32,657) (15,787)
Net cash generated from operating activities 144,835 118,979
13. Related party balances
Transactions between the Company and its subsidiaries have been
eliminated on consolidation and are not disclosed in this note.
Transactions between the Group and its associate and other related
parties are disclosed below.
Trading transactions:
During the year, Group companies entered into the following
transactions with related parties:
Darhold Limited: is a related party of the Group because it is
considered one of the major shareholders of Hikma Pharmaceuticals
PLC with ownership percentage of 29.5% at the end of 2010 (2009:
29.8%). Further details on the relationship between Mr. Samih
Darwazah, Mr. Said Darwazah, Mr. Mazen Darwazah and Mr. Ali
Al-Husry, and Darhold Limited are given in the Directors'
Report.
Other than dividends (as paid to all shareholders), there were
no transactions between the Group and Darhold Limited in the
year.
Capital Bank - Jordan: is a related party of the Group because
during the year three board members of the Bank are also board
members at Hikma Pharmaceuticals PLC. Total cash balances at
Capital Bank - Jordan were USD 2,169,000 (2009: USD 3,294,000).
Loans and overdrafts granted by Capital Bank to the Group amounted
to USD 48,000 (2009: USD 77,000) with interest rates ranging
between 8.75% and 3MLIBOR + 1. Total interest expense incurred
against Group facilities was USD 18,000 (2009: USD 28,000). Total
interest income received was 8,000 (2009: USD 37,000) and total
commission paid in the year was USD 76,000 (2009: USD 17,000).
Jordan International Insurance Company: is a related party of
the Group because one board member of the company is also a board
member at Hikma Pharmaceuticals PLC. Total insurance premiums paid
by the Group to Jordan International Insurance Company during the
year were USD 2,166,000 (2009: USD 1,686,000). The Group's
insurance expense for Jordan International Insurance Company
contracts in the year 2010 was USD 2,481,000 (2009: USD 2,006,000).
The amounts due to Jordan International Insurance Company at the
year end were USD 66,000 (2009: USD 129,000).
Tunisian companies: were related parties to the Group because
the Group used to hold a minority interest in Societe D'Industries
Pharmaceutiques Ibn Al Baytar S.A- Tunisia. This company owns
another Tunisian company Societe Hikma Medicef Limited - Tunisia,
which was therefore a related party as well. During March 2010, the
Company increased its equity interest in Societe D'Industries
Pharmaceutiques Ibn Al Baytar S.A- Tunisia to a controlling
interest. As a result, the results of those companies were
consolidated within Hikma Group consolidated financial statements
and are therefore no longer considered to be related parties.
In previous periods, amounts due from the two Tunisian
companies, net of provisions were 31 December 2009: USD 491,000 and
31 December 2009: USD 1,052,000 from Societe Hikma Medicef Limited
- Tunisia and Societe D'Industries Pharmaceutiques Ibn Al Baytar
S.A. - Tunisia, respectively. The corresponding Group's provision
for doubtful debts related to balances above was 31 December 2009:
USD 327,000.
13. Related party balances - continued
Mr. Yousef Abd Ali: Mr. Yousef Abd Ali is a related party of the
Group because he holds a non-controlling interest in Hikma Lebanon
of 33%, the amount owed to Mr. Yousef by the Group as at 31
December 2010 was USD 161,000 (2009: USD 161,000).
Labatec Pharma: is a related party of the Group because it is
owned by Mr. Samih Darwazah. During 2010 the Group total sales to
Labatec Pharma amounted to USD 414,000 (2009: USD 42,000) and the
Group total purchases from Labatec amounted to USD 1,373,000. At 31
December 2010 the amount owed to Group from Labatec Pharma was USD
193,000 (2009: USD 149,000).
King and Spalding: is a related party of the Group because the
partner of the firm is a board member and a company secretary of
West-Ward. King and Spalding is an outside legal counsel firm that
handles general legal matters for West-ward. During 2010 fees of
USD 927,000 (2009: USD 55,000) were paid for legal services
provided.
14. Acquisition of subsidiaries
On 29 October 2010, Hikma announced that it has also signed an
agreement to acquire the assets of Baxter Healthcare Corporation's
US generic injectables business for a cash consideration of USD 112
million. The deal is expected to be completed during April
2011.
During the period, Hikma acquired additional shareholdings in
two businesses: Societe D'Industries Pharmaceutiques Ibn Al Baytar
("Ibn Al Baytar") in Tunisia and Al Dar Al Arabia in Algeria.
Details of the provisional goodwill and gain on the previously
held equity interests arising on both acquisitions are as
below:
Gain on
the previously
held equity
Goodwill interests
Subsidiary $000 $000
Ibn Al Baytar 11,873 2,679
Al Dar Al Arabia 14,986 4,497
26,859 7,176
14. Acquisition of subsidiaries - continued
Details are as follows:
Ibn Al Baytar
On 26 March 2010 the Group increased its voting equity interest
in Ibn Al Baytar from 32.125% to 66% to obtain control and thereby
develop its activity in the North Africa region. In addition 29.05%
of the non-controlling interests in the company have waived the
voting rights attached to these shares. A call option over this
29.05% shareholding was held by the other 4.95% non-controlling
interest until 24 September 2010. During this period, the
non-controlling shareholder informed the Group that it intended to
exercise the option to increase their shareholding to 14.95%. This
is expected to take place during 2011.
The total fair value of the consideration is deemed to be USD
9,295,000, 50% of which is deferred. USD 5,000,000 is cash
consideration and the balance of USD 4,295,000 has been treated as
a financial liability and deemed consideration in accordance with
IAS 32 Financial Instruments: Presentation and IFRS 3 revised
(2008): Business Combinations.
As a consequence of the transaction, the previously held equity
interest was re-valued to USD 3,164,000. The resulting gain of USD
2,679,000 has been recognised in other operating income in the
year.
14. Acquisition of subsidiaries - continued
The net assets acquired in the transaction and the provisional
goodwill arising are set out below:
Fair value Fair
Ibn Al Baytar Book value adjustment value
$000 $000 $000
Net assets acquired:
Trade name 144 1,063 a 1,207
Cash and cash equivalent 263 - 263
Accounts receivable, gross 6,075 - 6,075
Provision for Doubtful debts and
expired goods (78) - (78)
Other current assets 2,721 - 2,721
Inventories 3,066 - 3,066
Financial assets 2 - 2
Deferred taxes asset 33 - 33
Property, plant and equipment 6,030 2,173 b 8,203
Financial debts (7,267) - (7,267)
Trade accounts payable (3,844) - (3,844)
Other current liabilities (1,317) - (1,317)
Income tax provision - (591) c (591)
Provisions (2,853) (1,405) d(4,258)
Long-term financial debts (2,535) - (2,535)
Deferred taxes liabilities (92) (971) e(1,063)
Identifiable net assets 348 269 617
Consideration 9,295
Fair value of previously held equity
interest (32.125%) 3,164
Non-controlling interest (4.95%)* 31
12,490
Less: identifiable net assets (617)
Goodwill 11,873
Consideration is satisfied by :
Cash 4,648
Deferred consideration 4,647
9,295
Cash consideration 4,648
Cash and cash equivalents acquired (263)
Net cash outflow arising on acquisition 4,385
*The non-controlling interest has been valued at 4.95% of the
fair value of identifiable net assets.
14. Acquisition of subsidiaries- continued
Gain on revaluation of previously held equity interest was
calculated as follows:
Ibn Al Baytar $000
Fair value of previously held equity interest
(32.125%) 3,164
Book value of previously held equity interest (32.125%) (485)
Gain on revaluation of previously held interest 2,679
a. Seven trade names relating to generic products and an under
licence contract have been valued using the relief from royalty
method.
b. The property, plant and equipment acquired have been
re-valued upwards to their fair value.
c. Certain tax exposures have been identified as a result of
open tax positions with the tax authorities.
d. This mainly comprises of retrospective compensation for
employees as a result of review by the local authorities with
relation to compliance with certain labour laws. In addition to
certain employees related business commitment adhered to before the
acquisition date.
e. Taxable temporary differences have been identified by
reference to IAS 12 "income tax".
The revenue and net profit of Ibn Al Baytar from the date of the
acquisition that is included in the Groups' income statement for
the year amounted to USD 11,379,000 and USD 370,000
respectively.
14. Acquisition of subsidiaries- continued
Al Dar Al Arabia
On 20 April 2010, the Group completed the acquisition of 100% of
the issued share capital of Al Dar Al Arabia for cash consideration
of USD 18,740,000 and deferred consideration of USD 1,153,000. The
deferred consideration relates to the estimated currency exchange
movement payable to the vendor on conversion of the consideration
from Algerian Dinars into US Dollars six months after completion.
Actual exchange movement paid amounted to USD 204,000. The
difference of USD 949,000 has been recognized as a gain in the
income statement.
The Al Dar Alarabia plant will double Hikma's manufacturing
capacity in Algeria and will provide significant scope for further
expansion both in Algeria and in the MENA region. As a consequence
of the transaction, the previously held equity interest was
re-valued to USD 9,947,000. The resulting gain of USD 4,497,000 has
been recognised in other operating income in the year.
The net assets acquired in the transaction and the provisional
goodwill arising are set out below:
Fair value
Al Dar Al Arabia Book value adjustment Fair value
$000 $000 $000
Net assets acquired:
Cash and cash equivalents 329 - 329
Property, plant and equipment 9,730 6,504 a 16,234
Other current liabilities (83) - (83)
Deferred tax liability - (1,626) b (1,626)
Identifiable net assets 9,976 4,878 14,854
Consideration 19,893
Fair value of previously held equity
interest (50%) 9,947
29,840
Less identifiable net assets (14,854)
Goodwill 14,986
Consideration is satisfied by :
Cash 18,740
Deferred consideration 1,153
19,893
Cash consideration 18,740
Cash and cash equivalents acquired (329)
Deferred consideration paid 204
Net cash outflow arising on
acquisition 18,615
14. Acquisition of subsidiaries- continued
Gain on revaluation of previously held equity interest was
calculated as follows:
Al Dar Al Arabia $000
Fair value of previously held
equity interest (50%) 9,947
Book value of previously held
equity interest (50%) (5,450)
Gain on revaluation of previously
held interest 4,497
a. The property, plant and equipment acquired have been
re-valued upwards to this fair value.
b. Taxable temporary differences have been identified by
reference to IAS 12 "income tax".
14. Acquisition of subsidiaries- continued
Full year impact of acquisitions:
If the acquisition of Ibn Al Baytar and Al Dar Al Arabia had
been completed on the first day of the financial year, the Group's
revenues for the year would have been approximately USD 733,398,000
and the Group's profit attributable to equity holders of the parent
would have been approximately USD 98,498,000.The appropriate
additional contribution by entity for the period from the beginning
of the year up to the acquisition date is illustrated in the table
below:
Effect Effect
on Group's on Group's
revenues profit
Subsidiary $000 $000
Ibn Al Baytar 2,462 (292)
Al Dar Al
Arabia - (59)
2,462 (351)
15. Foreign exchange currencies
The currencies that have a significant impact on the Group
accounts and the exchange rates used are as follows:
Period end rates Average rates
2010 2009 2010 2009
USD/EUR 0.7545 0.6977 0.7531 0.7170
USD/Sudanese Pound 3.1049 2.2398 2.5209 2.3173
USD/Algerian Dinar 74.0273 72.7309 74.3916 72.6817
USD/Saudi Riyal 3.7495 3.7495 3.7495 3.7495
USD/British Pound 0.6464 0.6278 0.6467 0.6386
USD/Jordanian Dinar 0.7090 0.7090 0.7090 0.7090
USD/Egyptian Pound 5.8224 5.5051 5.6555 5.5776
The Jordanian Dinar and Saudi Riyal have no impact on the
statement of comprehensive income as those currencies are pegged
against the US Dollar.
16. Contingent liabilities
The integrated nature of the Group's worldwide operations,
involving significant investment in research and strategic
manufacture at a limited number of locations, with consequential
cross-border supply routes into numerous end-markets, gives rise to
complexity and delay in negotiations with revenue authorities as to
the profits on which individual Group companies are liable to tax.
Disagreements with, and between, revenue authorities as to
intra-Group transactions, in particular the price at which goods
and services should be transferred between Group companies in
different tax jurisdictions, has the potential to produce
conflicting claims from revenue authorities as to the profits to be
taxed in individual territories.
In common with many other companies in the pharmaceutical
industry the Group is involved in various legal proceedings
considered typical to its business, including litigation relating
to employment, product liability and other commercial disputes.
As reported in 2009, West-Ward Pharmaceutical Corp. was a
co-defendant, with four other generic pharmaceutical manufacturers,
in litigation brought by Mutual Pharmaceutical Company, Inc.
regarding the continued sale by West-Ward Pharmaceutical Corp. and
the others of generic oral Colchicine in the United States,
following the approval by the FDA of Mutual's 'ColcrysTM'
Colchicine product (the "Claim"). On 18 October 2010 the Group
announced that the dispute between West-Ward Pharmaceutical Corp.
and Mutual Pharmaceutical Company, Inc relating to the sale of oral
Colchicine tablets had been resolved to the parties' mutual
satisfaction.
Additional information
Publication of Annual Report and Accounts
The preliminary statement is not being posted to shareholders.
The Report and Accounts will be posted to shareholders in due
course and will be delivered to the Registrar of Companies
following the Annual General Meeting of the Company. Once
published, copies of the Report and Accounts will be able to be
downloaded from the Company's website at www.hikma.com.
Annual General Meeting
The Annual General Meeting of Hikma Pharmaceuticals PLC will be
held at The Westbury, The Times Room, Bond Street, Mayfair, London
W1S 2YF, on Thursday, 12 May 2011 at 11.00 a.m.
Principal Risks and Uncertainties
The Group's business faces risks and uncertainties. The section
below sets out the principal risks and uncertainties that the Group
considers could have a significant effect on its financial
condition, results of operations or future performance. The list is
not set out in order of priority and other risks, currently unknown
or not considered material, could have a similar effect.
Operational risks
Risk Potential impact Mitigation
Compliance with cGMP
> Non-compliance > Delays in supply > Commitment to
with manufacturing or an inability to maintain the
standards (often market or develop highest levels of
referred to as the Group's quality across all
'Current Good products > Delayed manufacturing
Manufacturing or denied approvals facilities > Strong
Practices' or for the global compliance
cGMP) introduction of new function that
products > Product oversees compliance
complaints or across the Group >
recalls > Bans on Remuneration and
product sales or reward structure
importation > that helps retain
Disruptions to experienced
operations > personnel >
Litigation Continuous staff
training
Regulation
> Unanticipated > Restrictions on > Local operations
legislative and the sale of one or in most of our key
other regulatory more of our markets > Strong
actions and products > oversight of local
developments Restrictions on our regulatory
concerning various ability to sell our requirements to
aspects of the products at a help anticipate
Group's operations profit > Unexpected potential changes
and products additional costs to the regulatory
required to environments in
produce, market or which we operate >
sell our products > Representation
Increased and/or affiliation
compliance costs with local industry
bodies >
Commercialisation of
new products
> Delays in the > Slowdown in > Experienced
receipt of revenue growth from regulatory teams
marketing new products > able to accelerate
approvals, the Inability to submission
authorisation of deliver a positive processes across
price and return on all of our markets
re-imbursement > investments in R&D, > Highly qualified
Lack of approval manufacturing and sales and marketing
and acceptance of sales and teams across all
new products by marketing markets > A
physicians, diversified product
patients and other pipeline with over
key 60 new compounds
decision-makers > pending approval,
Inability to covering a broad
confirm safety, range of
efficacy, therapeutic areas >
convenience and/or A systematic
cost-effectiveness commitment to
of our products as quality that helps
compared to to secure approval
competitive and acceptance of
products > new products and
Inability to mitigate potential
participate in safety issues
tender sales
Product development
> Failure to > Inability to grow > Experienced and
secure new sales and increase successful in-house
products or profitability for research and
compounds for the Group > Lower development team >
development, return on Strong business
either through investment in development team >
internal research research and Track record of
and development development building
efforts, in-licensed brands
in-licensing, or
acquisition
Partnerships
> Inability to > Loss of products > Long-term
renew or extend from our portfolio relationships with
in-licensing or > Revenue existing
other partnership interruptions > in-licensing
agreements with a Failure to recoup partners >
third-party sales and marketing Experienced legal
and business team capable of
development costs negotiating robust
agreements with our
licensing partners
> Continuous
development of new
licensing partners
> Diverse revenue
model with in-house
research and
development
capabilities
Disruptions in the
manufacturing supply
chain
> Inability to > Inability > Alternate
procure active to develop approved suppliers
ingredients from and/or of active
approved sources > commercialise ingredients >
Inability to new products Long-term
procure active > Inability relationships with
ingredients on to market reliable raw
commercially existing material suppliers
viable terms > products as > Corporate
Inability to planned > auditing team
procure the Lost revenue continuously
quantities of streams on monitors regulatory
active ingredients short notice compliance of API
needed to meet > Reduced suppliers > Focus
market service on improving
requirements > levels and service levels and
Inability to damage to optimising our
supply finished customer supply chain
product to our relationships
customers in a
timely fashion
Economic and political
and unforeseen events
> The failure of > Disruptions to > Geographic
control, a change manufacturing and diversification,
in the economic marketing plans > with 15
conditions or Lost revenue manufacturing
political streams > Inability facilities and
environment or to market or supply sales in more than
sustained civil products 40 countries >
unrest in any Product
particular market diversification,
or country > with 423 products
Unforeseen events and 817 dosage
such as fire or strengths and
flooding could forms
cause disruptions
to manufacturing
or supply
Litigation
> Commercial, > Financial impact > In-house legal
product liability on Group results counsel with
and other claims from damages awards relevant
brought against > Reputational jurisdictional
the Group damage experience
Financial risks
Risk Impact Mitigation
Foreign exchange risk
> Exposure to > Fluctuations in > Entering into
foreign exchange the Group's net currency derivative
movements, asset values and contracts where
primarily in the profits upon possible > Foreign
European, Algerian, translation into currency borrowing
Sudanese and US dollars > Matching foreign
Egyptian currency revenues
currencies to costs
Interest rate risk
> Volatility in > Fluctuating >
interest rates impact on profits Optimisation
before taxation of fixed and
variable rate
debt as a
proportion of
our total
debt > Use of
interest rate
swap
agreements
Credit Risk
> Inability to > Reduced working > Clear credit
recover trade capital funds > terms for
receivables > Risk of bad debt settlement of sales
Concentration of or default invoices > Group
significant trade Credit policy
balances with key limiting credit
customers in the exposures > Use of
MENA region and the various financial
US instruments such as
letters of credit,
factoring and
credit insurance
arrangements
Liquidity Risk
> Insufficient free > Reduced > Continual
cash flow and liquidity and evaluation of
borrowings working capital headroom and
headroom funds > Inability borrowing >
to meet short-term Committed debt
working capital facilities >
needs and, Diversity of
therefore, to institution,
execute our long subsidiary and
term strategic geography of
plans borrowings
Tax
> Changes to tax > Negative impact > Close observation
laws and on the Group's of any intended or
regulations in any effective tax rate proposed changes to
of the markets in > Costly tax rules, both in
which we operate compliance the UK and in other
requirements key countries where
the Group operates
This information is provided by RNS
The company news service from the London Stock Exchange
END
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