TIDMHIK
RNS Number : 0006N
Hikma Pharmaceuticals Plc
25 August 2011
PRESS RELEASE
Hikma delivers a resilient H1 performance and is on track to
deliver full year guidance for revenue growth and gross margin
London, 25 August 2011 - Hikma Pharmaceuticals PLC (LSE: HIK)
(NASDAQ DUBAI: HIK), the fast growing global pharmaceutical group,
today reports its interim results for the six months ended 30 June
2011.
H1 2011 highlights
-- Group revenue increased by 10.4% to $394.8 million, with
organic(1) growth of 3.2%
-- Branded revenue increased by 3% despite disruptions in
several MENA markets and remains on track for around 7% full year
growth
-- Continued investment in our people, our facilities and our
overall operations in MENA during the period, reflecting our
commitment to the region
-- Generic revenues declined bv 12.4% as expected, reflecting
the exceptional colchicine sales in the first half of 2010.
Excluding colchicine, Generics delivered double-digit revenue
growth and remains on track to achieve around $160 million in
revenue for the full year
-- Excellent revenue growth in the global Injectables business
of 55.9%, with organic(1) revenue growth of 21.6% and organic
operating profit up 41.0%
-- Closed the MSI transaction following a significant regulatory
delay, giving rise to higher transaction costs of $5.4 million and
a net loss of $5.0 million in the two months to 30 June 2011. MSI
is expected to break even in the second half and achieve EBITDA
margin of at least 10% in 2012
-- Gross margin was 43.7% compared to 49.9% and operating margin
was 12.4% compared to 20.8%, reflecting the discontinuation of high
margin colchicine sales, the consolidation of the Multi-Source
Injectables (MSI) business, disruptions in the MENA region and the
impact of currency movements
-- Profit attributable to shareholders of $33.1 million,
compared to $54.7 million in the first half of 2010. On an adjusted
basis(2) profit attributable to shareholders was $41.1 million,
compared to $52.8 million
-- Continued new product delivery across all countries and
markets - launched 44 products and received 71 product
approvals
-- Maintained the interim dividend at 5.5 cents per share
-- Successfully completed investments in India and China,
strengthening the quality and sourcing of Active Pharmaceutical
Ingredients (APIs) and enhancing our R&D capabilities
(1) Before the consolidation of the Multi-Source Injectables
business
(2) Before the amortisation of intangible assets (excluding
software) of $4.0 million in H1 2011 and $3.7 million in H1 2010
and before exceptional items. In H1 2011, exceptional items
included transaction costs of $5.4 million, a fair value inventory
adjustment of $1.2 million and the amortisation of pre-paid
integration costs of $0.6 million, all of which relate to the MSI
acquisition. In H1 2010, exceptional items included transaction
costs of $2.3 million and non-recurring revaluation gains of $7.2
million
Said Darwazah, Chief Executive Officer of Hikma, said:
"I am very pleased with the resilient performance across the
Group in the first half. While successfully managing unprecedented
change and significant disruption in the MENA region, we have
continued to invest in our MENA businesses. These investments - in
our people, our facilities and our overall operations - reflect our
commitment to the region.
We are delivering on our strategy to increase the scale of our
global Injectables business. The organic business is performing
very well and after an extended FTC approval process, our team in
the US is rapidly integrating the MSI business and restructuring
the operations to maximise operating efficiencies. At the same
time, we are implementing our plans to capitalise on the exciting
opportunities this business offers.
Excluding colchicine, which was discontinued in the second half
of 2010, our Generics business achieved double-digit growth and we
continue to leverage our FDA-approved operations in the MENA region
to maximise the potential of our US product portfolio.
We have benefited once again from the diversity of our business
model. We continue to expect a strong performance in the second
half of the year and believe the Group remains well positioned for
2011 and beyond."
Enquiries
Hikma Pharmaceuticals PLC +44 (0)20 7399 2760
Susan Ringdal, Investor Relations Director
Financial Dynamics +44 (0)20 7831 3113
Ben Atwell /Julia Phillips/Jonathan Birt/Matthew Cole
About Hikma
Hikma Pharmaceuticals PLC is a fast growing global
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
primarily 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 $730.9 million and profit attributable
to shareholders of $98.8 million.
A presentation for analysts will take place today at 09:00 at
Financial Dynamics. Please call Mo Noonan for details on +44 (0) 20
7831 3113.
A video interview of Said Darwazah, CEO, is available at
www.hikma.com and www.cantos.com.
Interim management report
Overview
Hikma's Group revenue increased by 10.4% to $394.8 million in
the first half of 2011. Excluding the contribution of the MSI
acquisition, organic sales growth was 3.2%.
In the first half, on a reported basis, Group gross profit
decreased by 3.3% to $172.6 million and operating profit decreased
by $25.2 million or 34.0% to $49.0 million. The decline in
profitability reflects an exceptionally strong comparator period
that included non-recurring profits from high margin colchicine
sales. It also reflects the consolidation of the MSI business,
disruptions in MENA and an increase in employee benefits across the
region, and the impact of currency movements.
The Group is on track to meet our full year target of around 7%
revenue growth and around 47% gross margin, before the
consolidation of the MSI business.
Summary P&L H1 2011 H1 2010
$ million Reported Reported Change
------------------------------------ ---------- ---------- -------
Revenue 394.8 357.7 +10.4%
------------------------------------ ---------- ---------- -------
Gross profit 172.6 178.5 -3.3%
------------------------------------ ---------- ---------- -------
Reported operating profit 49.0 74.3 -34.0%
------------------------------------ ---------- ---------- -------
Adjusted operating profit(3) 60.3 73.2 -17.5%
------------------------------------ ---------- ---------- -------
Reported profit attributable
to shareholders 33.1 54.7 -39.4%
------------------------------------ ---------- ---------- -------
Adjusted profit attributable
to shareholders(3) 41.1 52.8 -22.1%
------------------------------------ ---------- ---------- -------
Diluted earnings per share (cents) 16.7 27.9 -40.1%
------------------------------------ ---------- ---------- -------
Adjusted diluted earnings per
share (cents) (3) 20.7 26.9 -23.3%
------------------------------------ ---------- ---------- -------
Dividend per share (cents) 5.5 5.5 -
------------------------------------ ---------- ---------- -------
Net cash flow from operating
activities 19.2 65.3 -70.6%
------------------------------------ ---------- ---------- -------
During the period, our team in the MENA region did an excellent
job of managing unprecedented disruptions in several markets and we
have invested in strengthening our sales and manufacturing
operations. With the exception of the markets affected by political
unrest, we delivered double-digit growth in most other markets and
3.0% revenue growth for the Branded segment overall.
As expected, Generics revenues declined by 12.4% on a reported
basis in the first half of 2011, reflecting the exceptional
colchicine sales in the first half of 2010. If we exclude these,
the Generics business achieved double-digit growth, demonstrating
the strength of our underlying product portfolio. We reiterate our
full year revenue guidance of around $160.0 million for the
Generics business and expect operating margin in the low teens.
The organic(4) Injectables business delivered an excellent
performance during the period, with growth of 21.6% and strong
performances in all regions, reflecting our expanding product
portfolio, growth in contract manufacturing, the benefits of our
global scale and the more aggressive approach we have taken to
tenders. We expect this strong performance to continue in the
second half and expect strong operating margin expansion for the
full year.
(3) Before the amortisation of intangible assets (excluding
software) of $4.0 million in H1 2011 and $3.7 million in H1 2010
and before exceptional items. In H1 2011, exceptional items
included transaction costs of $5.4 million, a fair value inventory
adjustment of $1.2 million and the amortisation of pre-paid
integration costs of $0.6 million, all of which relate to the MSI
acquisition. In H1 2010, exceptional items included transaction
costs of $2.3 million and non-recurring revaluation gains of $7.2
million
(4) Before the consolidation of the Multi-Source Injectables
business
Our acquisition of Baxter's Multi-Source Injectables (MSI)
business was completed on 2 May 2011 and the results of MSI have
been consolidated for the two months to 30 June 2011, contributing
additional sales of $25.5 million to our Injectables business for
the first half.
Due to the significant delay in closing the MSI transaction,
caused by an extended FTC review, we have incurred higher than
expected integration and transaction costs of $5.4 million, giving
rise to an operating loss of $6.9 million and a net loss of $5.0
million for the MSI business in the two months to 30 June 2011.
Since closing, the integration process has proceeded apace. We
have identified opportunities for cost savings, operational
synergies and portfolio optimisation and we are rapidly
implementing our restructuring plans. We have also begun actively
pursuing the excellent long term growth opportunities in respect of
the product portfolio that made this such an attractive investment
to us. We expect the MSI business to break even in the second half
of 2011. For 2012, we expect MSI to contribute revenues of at least
$180.0 million and EBITDA margin of at least 10.0%.
Currency movements, particularly the Sudanese Pound, the
Japanese Yen and the Euro, had a negative impact on our results in
the first half of 2011 compared to the first half of 2010(5) . In
constant currency, Group operating profit would have been 11.4% or
$5.6 million higher in the first half of the year. We expect the
adverse currency impact on reported operating profit for the full
year to be around $10.0 million.
During the first half of 2011, we have had success in executing
our strategy to build our API and R&D capabilities through
strategic minority investments. We acquired a minority stake in
Unimark Remedies Limited (Unimark), a leading manufacturer of API
ingredients and API intermediates. We will collaborate with Unimark
to develop new strategic APIs and ANDAs. This will enable us to
bring more products in more therapeutic areas to market
globally.
We also acquired a minority stake in Hubei Haosun Pharmaceutical
Co Ltd (Haosun), a Chinese company that develops and manufactures
niche, difficult to make APIs. This investment will give us access
to a high quality, long term source of oncology API.
We are also pleased to announce today that Robert Pickering will
be appointed to Hikma's Board of Directors on 1 September 2011 as
an independent non-executive director. Robert brings extensive
experience in advising high growth companies on issues relating to
corporate governance, strategy and global operations. Robert spent
23 years at Cazenove & Co. becoming the first Chief Executive
of Cazenove Group PLC in 2001. He served as Chief Executive of
Cazenove and also JP Morgan Cazenove, the joint venture
partnership, until his retirement in 2008. He has extensive
experience of capital raising, mergers and acquisitions and of the
relationship between quoted companies and investors. Robert is a
qualified solicitor with a law degree from Lincoln College, Oxford.
He is a non-executive director of Neptune Asset Management.
(5) The first half results are based on average exchange rates,
principally $1/3.07 Sudanese Pound, $1/Yen 81.94, $1/EUR1.40.
Comparative exchange rates for the first half of 2010 were $1/2.39
Sudanese Pound, $1/Yen 91.47, $1/EUR1.33
Branded
H1 2011 highlights:
-- Branded revenue increased by 3.0%, demonstrating the
resilience of our business in the MENA region
-- On track to meet Branded revenue guidance of around 7% growth
for the full year
Branded revenue increased by 3.0% in the first half of 2011 to
$199.6 million, despite challenging market conditions in some
territories. In constant currency, Branded revenue increased by
4.9%.
With the exception of the markets affected by political unrest
during the period, we achieved double-digit growth in most of our
other MENA markets, with an excellent performance in Algeria, Sudan
and Iraq. This growth was partially offset by disruptions to our
operations in Tunisia, Egypt, Libya, Yemen and Bahrain, which were
impacted by political unrest. Our experience in operating in more
challenging market conditions enabled us to respond quickly and
effectively to the disruptions to our operations in Tunisia, Egypt
and Bahrain and to minimise their impact. These markets are now
recovering well and we expect that our performance in these
territories will continue to improve in the second half provided
market conditions remain stable. In Libya, where tensions have been
more protracted, we are only now beginning to see a recovery.
During the first half we continued to see a good performance in
our core Anti-Infective business and have continued to build our
capabilities in the Cardiovascular and Diabetes market. Sales in
our Central Nervous System (CNS) business are accelerating and we
delivered strong growth from some of our recently launched products
across a range of therapeutic areas. We also continued to invest in
our manufacturing facilities during the period. We completed
upgrades of our facilities in Tunisia and Egypt and are nearing
completion of our new Anti-Infective facility in Algeria.
In the first half, the Branded business launched a total of 16
products across all markets, including 2 new compounds and 3 new
dosage forms and strengths. Through the launch of these products,
we are bringing new solutions for the treatment and care of
patients with heart disease and cancer and enhancing our
Anti-Infective portfolio. The Branded business also received 27
regulatory approvals across the region, including 4 for new
products, of which two will enhance our CNS portfolio and one will
enhance our portfolio of palliative care products for cancer.
During the first half, the use of Actos, a product we license
from Takeda for the treatment of Type 2 diabetes, was suspended by
regulatory authorities in Lebanon, Tunisia and Algeria due to
concerns regarding a slight increase in the risk of bladder cancer
in long-term users. The FDA and the EMA have not recommended
suspension or withdrawal of Actos from their markets and we have
been able to continue to sell Actos in all other markets where we
have registered the product, though in some markets we expect to be
impacted by more restrictive labelling requirements.
Revenue from in-licensed products declined slightly in the first
half of 2011 to $80.9 million (representing 40.5% of Branded
sales), compared to $82.6 million in the comparative period.
Our rapid response to events in the region, and in Egypt and
Tunisia in particular, enabled us to limit the impact on Branded
profitability. Branded gross profit of $99.2 million in the first
half of 2011 was just $3.0 million lower than the comparative
period and gross margin declined from 52.7% to 49.7%. The decline
is primarily the result of lost sales in Libya and Yemen and of
action we took to increase salaries and employee benefits across
the MENA region to minimise the impact of market disruptions. The
decline also relates to the negative impact of currency movements
against the US dollar in the first half of 2011 compared to the
first half of 2010. In particular, the significant depreciation of
the Sudanese Pound reduced the translation rate for our reported
sales and the appreciation of the Japanese Yen significantly
increased the cost of raw materials for in-licensed products.
Operating profit in the Branded business was $45.2 million,
compared to $54.3 million in the first half of 2010. Operating
margin was 22.6%, compared to an operating margin of 28.0% in the
first half of 2010. Excluding the non-recurring gain of $7.2
million that we benefited from in the prior year period, the
reduction in operating profit was $1.9 million. This difference is
explained by the impact of foreign exchange movements, the
improvements that we have made in employee benefits across the
region and our investment in the sales and marketing teams in MENA,
which were partially offset through tight cost control.
We are confident that the Branded business will deliver stronger
sales growth in the second half in our key markets. We therefore
expect to achieve our target of around 7.0% revenue growth for the
full year and we expect full year operating margin of around
23.0%.
Injectables
H1 2011 highlights:
-- Excluding MSI, Injectables revenue grew by 21.6%, driven by a
strong performance across all three regions
-- Injectables operating margin, excluding MSI, improved by 220
basis points to 16.4%
-- Closed MSI acquisition on 2 May 2011 and swiftly implementing
integration and restructuring plans
H1 2011
Summary P&L Group ex H1 2011 H1 2011
$ million MSI MSI Group Consolidated
------------------------------ ---------- -------- --------------------
Revenue 369.2 25.5 394.8
------------------------------ ---------- -------- --------------------
Gross profit 167.0 5.6 172.6
------------------------------ ---------- -------- --------------------
Operating profit 56.0 (6.9) 49.0
------------------------------ ---------- -------- --------------------
Adjusted operating
profit(6) 59.7 0.6 60.3
------------------------------ ---------- -------- --------------------
Profit attributable
to shareholders 38.1 (5.0) 33.1
------------------------------ ---------- -------- --------------------
Adjusted profit attributable
to shareholders 41.1 - 41.1
------------------------------ ---------- -------- --------------------
(6) Before the amortisation of intangible assets (excluding
software) of $4.0 million and exceptional items, which include
transaction costs of $5.4 million, a fair value inventory
adjustment of $1.2 million and the amortisation of pre-paid
integration costs of $0.6 million, all of which relate to the MSI
acquisition
Injectables revenue by region
H1 2011 H1 2010
---------------- -------- --------
MENA 31.1% 40.0%
---------------- -------- --------
US 37.6% 17.4%
---------------- -------- --------
Europe and ROW 31.3% 42.6%
---------------- -------- --------
Revenue in our global Injectables business increased by 55.9% to
$116.1 million, compared to $74.5 million in the first half of
2010. Excluding $25.5 million from the MSI acquisition,
consolidated for May and June, organic revenue growth was
21.6%.
In the MENA region, Injectables sales increased by 21.3% to
$36.1 million, compared to $29.8 million in the first half of 2010.
This reflects significant growth in private sales in Saudi Arabia,
Sudan, Algeria and Iraq and a more aggressive approach to tenders
driving an increased win rate.
Sales in our European Injectables business grew by 14.6% to
$36.4 million in the first half. An increase in contract
manufacturing as well as new product launches enabled us to offset
continued price declines across our European markets.
Excluding MSI, our Injectables business in the US grew by 39.7%
to $18.1 million, driven by growth in sales of existing products,
new product launches and increased demand for contract
manufacturing. As mentioned above, the MSI business contributed an
additional $25.5 million in sales.7
During the first half of 2011, the Injectables business launched
a total of 25 products across all markets, including 4 new
compounds and 8 new dosage forms and strengths. The Injectables
business also received a total of 32 regulatory approvals across
all regions and markets, including 20 in MENA, 10 in Europe and 2
in the US.
On 17 August, Hikma announced that it had entered into a
licensing and distribution agreement with Vifor Pharma, a
wholly-owned subsidiary of the Galenica Group, under which Hikma
will market Ferinject(R), Vifor Pharma's innovative treatment for
iron deficiency, in the MENA region. The agreement will leverage
Hikma's local presence, regional marketing and regulatory
expertise, allowing Hikma to maximise the potential of one of the
world's fastest-growing markets for iron deficiency products.
On 17 May 2011, Hikma announced that it had entered into an
exclusive co-promotion agreement with Therabel Pharma Deutschland
GmbH to support the launch of Loramyc(R) for cancer patients in the
retail oncology community. The agreement brings together Therabel's
strong knowledge and broad coverage of the German hospital market
and Hikma's extensive experience in the oncology segment, to
provide the market access required to ensure the success of this
specialty drug in the oncology segment.
Injectables gross profit increased by 27.0% to $43.6 million in
the first half of 2011, compared to $34.3 million in the first half
of 2010, with gross margin decreasing to 37.5%, compared to 46.1%
in the comparative period. The reduction in margin reflects the
integration of the lower margin MSI business, higher raw material
prices as a result of a strengthening of the Euro and an increase
in overhead costs as we scale up the new lyophilized plant in
Portugal in 2011.
Operating profit for the Injectables business increased by 26.5%
to $13.3 million in the first half of the year. Operating margin
declined from 14.2% to 11.5%. This includes operating losses of
$1.5 million incurred by the MSI business in the two months to 30
June 2011 but excludes transaction costs of $5.4 million, which
have been classified as corporate expenses.
Excluding the MSI business, Injectables operating profit
increased by 41.0% to $14.9 million and operating margin increased
to 16.4%. This excellent improvement in operating margin reflects
expansion of our product portfolio, growth in contract
manufacturing, the benefits of global economies of scale and better
cost control.
7Following changes in the contractual arrangements with
wholesalers since acquiring the MSI business, Baxter's 'fees for
service arrangements' with wholesalers have now become 'direct
rebates' under Hikma's contracts with wholesalers. This change in
contractual arrangements has no impact on operating margin,
however, it reduces MSI's net sales as reported by Hikma.
We anticipate that the strong first half performance of the
organic Injectables business will continue for the remainder of
2011. The integration of the MSI operations in the US is
progressing well, as we focus on restructuring the operations to
drive operating efficiencies and to maximise the potential of the
product portfolio. We are also actively pursuing the excellent long
term growth opportunities that made this acquisition attractive.
The MSI business is expected to contribute net sales of around $100
million to $105 million for the full year in 2011 and a net loss of
around $5.0 million (including $5.4 million of transaction costs).
For 2012, we expect MSI to contribute revenues of at least $180.0
million and EBITDA margin of at least 10.0%.
Generics
H1 2011 highlights:
-- Generics revenue declined by 12.4% to $76.4 million in the
first half of 2011 due to the discontinuation of colchicine
sales8
-- Excluding colchicines sales, we achieved double-digit growth
in Generics revenue
-- Significant investments made to strengthen the senior
management team in preparation for future growth
Generics revenue declined by 12.4% to $76.4 million in the first
half, compared to $87.2 million in the first half of 2010. This
decline is due to the discontinuation of colchicine sales, which
provided us with an opportunity to achieve exceptional sales in
2010 that was not available in 2011. Excluding the impact of
colchicine, we achieved double-digit growth in the Generics
business over the comparative period.
This strong underlying performance was driven in part by our
ability to drive sufficient volume growth to offset a slight
increase in pricing pressure. Our ability to leverage our global
manufacturing capabilities also helped to drive sales. We now have
10 products in 29 dosage forms and strengths which we produce at
our MENA facilities for sale in the US market. These products
represented 24.8% of Generics sales during the period, compared to
20.9% in the first half of 2010.
During the first half of 2011, the Generics business received 3
ANDA approvals.
Generics gross profit was $29.2 million, compared to $41.8
million in the first half of 2010 and gross margin was 38.3%
compared to 47.9% in the first half of 2010. This reflects the loss
of the exceptional benefit of high margin colchicine sales in the
prior year period.
Generics operating profit decreased by 61.1% to $10.2 million in
the first half of 2011, down from $26.1 million in the comparative
period. Operating margin returned to a more sustainable 13.3%,
compared to 30.0%, principally due to the lack of colchicine sales
in 2011. We have also slightly increased the operating costs of the
Generics business through higher provisions for slow moving items
and through investments to strengthen our senior management team.
We have hired experienced individuals to enhance key functions of
the Generics business including finance, supply chain management,
operations, compliance and HR.
We expect the strong performance of the business in the first
half of 2011 to continue during the second half of the year and
reiterate our guidance for full year Generics revenue of around
$160 million. We expect Generics operating margin for the full year
will be in the low teens.
8During 2010 we were able to take advantage of some specific
market opportunities. The most notable related 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
Pharmaceuticals, Hikma's wholly-owned subsidiary in the US,
discontinued sales of oral colchicine to comply with regulatory
requirements of the US Food and Drug Administration.
Other businesses
Other businesses, which primarily comprise Arab Medical
Containers, a manufacturer of plastic specialised packaging,
International Pharmaceuticals Research Centre, which conducts
bio-equivalency studies, and the chemicals division of Hikma
Pharmaceuticals PLC, contributed revenues of $2.7 million, compared
to aggregate revenue of $2.2 million in the first half of 2010.
These other businesses delivered an operating loss of $1.6
million in the first half of 2011, compared to a loss of $1.9
million in the first half of 2010.
Group
Revenue for the Group grew by 10.4% to $394.8 million in the
first half of 2011, compared to $357.7 million in the first half of
2010. Excluding the impact of the recent MSI acquisition, Group
revenues grew by $11.5 million, or 3.2%, driven by growth across
all segments of our underlying business.
The Group's gross profit decreased by 3.3% to $172.6 million in
the first half of 2011, compared to $178.5 million in the first
half of 2010. Group gross margin was 43.7%, compared to 49.9% in
the previous period, primarily due to the discontinuation of high
margin colchicine sales, the consolidation of the MSI business,
disruptions in the MENA region and the impact of currency
movements.
Group operating expenses grew by 18.6% to $123.6 million in the
first half of 2011, compared to $104.2 million in the first half of
2010. Excluding the amortisation of intangible assets (excluding
software) and exceptional items(9) , adjusted Group operating
expenses grew by 6.6% to $112.3 million. The paragraphs below
address the Group's main operating expenses in turn.
Sales and marketing expenses remained stable as a percentage of
sales at 14.4%, reaching $57.0 million for the first half of 2011,
compared to $52.7 million in the comparative period. We are
continuing to invest in the growth of our MENA sales force and at
the same time we are achieving the benefits of scale in our global
Injectables business.
General and administrative expenses increased by $7.5 million or
20.1% to $45.1 million in the first half. As a percentage of sales,
general and administrative expenses increased to 11.4%, up from
10.5% in the first half of 2010. This is principally due to an
increase in transaction costs of $5.4 million and integration costs
of $0.6 million in the first half of 2011, compared to transaction
costs of $2.3 million in the first half of 2010. It also reflects
our significant investment in our US management team in preparation
for the integration of the recently acquired MSI business and the
development of the combined US operations.
Investment in R&D grew by 12.6% to $11.5 million, with total
investment in R&D representing 2.9% of Group revenues, compared
to 2.8% in the first half of 2010. We expect R&D spend will
increase in the second half of the year as we continue to execute
our plans to develop our R&D pipeline, particularly for
injectable products.
Other net operating expenses increased on a reported basis by
$6.2 million to $10.1 million. Excluding $7.2 million of
non-recurring revaluation gains on equity interests from the
comparable period, other net operating expenses decreased by $1.0
million.
(9) In H1 2011, amortisation of intangible assets (excluding
software) was $4.0 million (H1 2010: $3.7 million). In H1 2011,
exceptional items include transaction costs of $5.4 million, a fair
value inventory adjustment of $1.2 million and the amortisation of
pre-paid integration costs of $0.6 million, all of which relate to
the MSI acquisition. In H1 2010, exceptional items include
transaction costs of $2.3 million and non-recurring revaluation
gains of $7.2 million
Operating profit for the Group declined by 34.0% to $49.0
million in the first half of 2011. Group operating margin declined
to 12.4%, down from 20.8% in the first half of 2010. On an adjusted
basis, Group operating profit declined by 17.5% to $60.3 million
and operating margin declined from 20.5% to 15.3%.
Research & Development(10)
The Group's product portfolio continues to grow. During the
first half of 2011, we launched 7 new compounds, expanding the
Group portfolio to 462 compounds in 911 dosage forms and strengths.
We manufacture and/or sell 50 of these compounds under-license from
the originator.
Across all businesses and markets, a total of 44 products were
launched during the first half. In addition, the Group received 71
approvals.
Total marketed
products Products launched in H1 2011
------------- ---------------------- ---------------------------------------
Total
Dosage New dosage launches
forms and New forms and across all
Compounds strengths compounds strengths countries(11)
Branded 255 488 2 3 16
Injectables 158 305 4 8 25
Generics 49 118 1 3 3
Group 462 911 7 14 44
(10) 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.
(11) Totals include all compounds and formulations that are
either launched, approved or pending approval across all
markets.
Products pending approval as
Products approved in H1 2011 at 30 June 2011
------------- -------------------------------------- -----------------------------------
Total
pending
New Total New approvals
dosage approvals dosage across all
New forms and across all New forms and countries
compounds strengths countries(11) compounds strengths (11)
Branded 4 10 27 74 144 19612
Injectables 1 2 32 68 115 23112
Generics 3 12 12 23 23 23
Group 8 24 71 165 282 450
12 Includes all submissions made for the first time in a
particular market, but excludes re-submissions, which have
historically been included in this calculation.
To ensure the continuous development of our product pipeline, we
submitted 81 regulatory filings in the first half of the year
across all regions and markets. As of 30 June 2011, we had a total
of 450 pending approvals across all regions and markets.
At 30 June 2011, we had a total of 144 new products under
development, the majority of which should receive several marketing
authorisations for different strengths and/or product forms over
the next few years.
Net finance expense
Net finance expense increased to $9.3 million, compared to $6.4
million in the first half of 2010 due to the higher net debt as
explained in the net cash flow, working capital and net debt
section below.
Profit before tax
Profit before tax for the Group decreased by 40.9% to $39.9
million, compared to $67.5 million in the first half of 2010.
Adjusted profit before tax decreased by 22.9% to $51.1 million.
Tax
The Group incurred a tax expense of $4.8 million in the first
half, compared to $12.9 million in the first half of 2010. The
effective tax rate was 11.9%, compared to 19.1% in the first half
of 2010. The decrease in the tax rate is mainly attributable to the
reduced profitability of the US business.
Profit for the period
The Group's profit attributable to equity holders of the parent
decreased by 39.4% to $33.1 million in the first half of 2011.
Adjusted profit attributable to equity holders of the parent
decreased by 22.1% to $41.1 million.
Earnings per share
Diluted earnings per share decreased by 40.1% to 16.7 cents,
compared to 27.9 cents in the first half of 2010. Adjusted diluted
earnings per share were 20.8 cents, a decrease of 22.7% over the
first half of 2010.
Dividend
The Board has declared an interim dividend of 5.5 cents per
share (approximately 3.3 pence per share), compared to 5.5 cents
per share for the first half of 2010. The interim dividend will be
paid on 13 October 2011 to eligible shareholders on the register at
the close of business on 9 September 2011. The ex-dividend date is
7 September 2011 and the final date for currency elections is 23
September 2011.
Net cash flow, working capital and net debt
The Group generated operating cash flow of $19.2 million in the
first half of 2011, compared to $65.3 million in the first half of
2010. This reduction in operating cash flow reflects the funding
requirements of the MSI business and an increase in Group
inventories.
The consolidation of the MSI balance sheet at 30 June 2011
increased Group working capital by $69.3 million compared to June
2010. The MSI transaction was structured as an asset purchase which
included the purchase of $52.5 million of inventories but no other
working capital. Following the acquisition, Hikma made a cash
injection of $18.9 million to fund the working capital of MSI in
the first two months of trading.
Excluding the impact of MSI, Group inventory has increased by
$42.5 million compared to June 2010 and inventory days increased by
18 days to 193 days. The increase was partially due to higher
inventories being held in MENA due to the market disruptions and in
anticipation of higher sales in the second half of 2011. In
addition, the Generics business took a strategic decision to hold
higher inventories this year to enable the business to be
opportunistic in respect of product shortages in the market, as
well as to be competitive in delivering an outstanding service
level.
Excluding MSI, Group receivable days decreased by four days to
103 days at 30 June 2011. This improvement reflects a focus on
enhanced cash collection arrangements in the MENA region. Group
payable days increased by five days to 82 days at 30 June 2011,
reflecting an increased emphasis on payables management across the
Group.
Overall, Group working capital days increased from 205 days at
June 2010 to 214 days at June 2011, excluding the MSI impact.
Capital expenditures increased to $33.2 million, compared to
$23.4 million in the first half of 2010. A total of $25.6 million
was spent in MENA alone on facility enhancement and expansion
projects in Egypt, Tunisia and Algeria. This underlines our future
growth expectation in MENA and our commitment to the region. Other
investments included machinery and equipment for the new
lyophilisation facility in Portugal and machinery upgrades in the
US. The estimated capex for the second half of 2011 is around $45.0
million, which includes investment in the MSI business.
Group net debt increased from $123.6 million at 30 June 2010 to
$322.7 million at 30 June 2011. Net debt on 31 December 2010 stood
at $101.1 million. The increase in borrowing in the first half of
2011 was principally to finance the initial consideration of $103.8
million for the MSI acquisition, 13 as well as incremental
financing to fund $38.6 million of investments in India and China.
The higher net debt balance also reflects the deferred
consideration for the MSI acquisition of $12.7 million, the finance
lease obligations acquired in the transaction of $15.1 million,
transaction costs of $5.4 million and the cash injection of $18.9
million to fund the working capital of MSI in the two months of
trading post the acquisition.
Balance sheet
During the period, shareholder equity increased by $14.4 million
reflecting an unrealised increase due to the exchange difference on
translation of foreign operations. The increase primarily reflects
the Euro/US dollar spot rate, which has appreciated by nearly 9.0%
as of 30 June 2011 (1.4391) compared to 31 December 2010 (1.3253),
and is the result of the revaluation of net assets denominated in
currencies other than US dollars.
Summary and Outlook
Despite an exceptionally strong comparator period in the first
half of 2010 and challenging MENA markets, Hikma has delivered a
resilient performance in the first half of 2011. The MENA business
is performing well, Injectables is growing very strongly and the
Generics business, excluding colchicine, is delivering double-digit
growth.
The Group remains on track to meet our full year target of
around 7% revenue growth and around 47% gross margin, before the
consolidation of the MSI business.
We are expecting stronger sales growth in the MENA region in the
second half and we continue to expect our Branded business to
deliver around 7% revenue growth for the full year, with operating
margin of around 23%.
(13) The consideration for the MSI acquisition was $112 million
plus an additional inventory payment of $4.5 million. The total
consideration of $116.5 million includes deferred consideration of
$12.7 million.
We expect ongoing growth in our Generics business and we
reiterate our guidance of around $160 million in revenue for the
full year and expect operating margin in the low teens.
Our organic Injectables business is expected to continue to
perform well with significant operating margin expansion for the
full year. The MSI business is expected to contribute net sales of
around $100 million to $105 million and a net loss of around $5.0
million (including transaction costs of $5.4 million) for the full
year in 2011. For 2012, we expect MSI to contribute revenues of at
least $180 million and EBITDA margin of at least 10%.
Overall we are pleased with the progress of the Group in the
first half of 2011 and expect Hikma's long track record of doubling
the business every four years to continue over the medium term.
Going concern statement
As stated in note 2 to the condensed financial statements, the
Directors are satisfied that the Group has sufficient resources to
continue in operation for the foreseeable future, a period of not
less than twelve months from the date of this report. Accordingly
they continue to adopt the going concern basis in preparing the
condensed financial statements.
Responsibility statement
The Board confirms that to the best of its knowledge:
(a) the condensed set of financial statements has been prepared
in accordance with IAS 34 'Interim Financial Reporting';
(b) the interim management report includes a fair review of the
information required by DTR 4.2.7R (indication of important events
during the first six months including their impact on the financial
statements and description of principal risks and uncertainties for
the remaining six months of the year); and
(c) the interim management report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related parties'
transactions and changes therein which have had or could have a
material financial effect on the financial position of the Group
during the period).
By order of the Board
Said Darwazah
Chief Executive Officer
25 August 2011
Cautionary statement
This Interim Management Report ("IMR") has been prepared solely
to provide additional information to shareholders to assess the
Group's strategies and the potential for those strategies to
succeed. The IMR 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.
Hikma Pharmaceuticals PLC
INDEPENDENT REVIEW REPORT TO HIKMA PHARMACEUTICALS PLC
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2011 which comprises the condensed
consolidated statement of comprehensive income, the condensed
consolidated balance sheet, the condensed consolidated statement of
changes in equity, the condensed consolidated cash flow statement
and related notes 1 to 16. We have read the other information
contained in the half-yearly financial report and considered
whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of
financial statements.
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Auditing Practices
Board. Our work has been undertaken so that we might state to the
company those matters we are required to state to them in an
independent review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the company, for our review work, for this
report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure and Transparency Rules of the United Kingdoms'
Financial Services Authority.
As disclosed in note 2, the annual financial statements of the
Group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34, "Interim
Financial Reporting," as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2011 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Services Authority.
Deloitte LLP
Chartered Accountants and Statutory Auditor
London, United Kingdom
24 August 2011
Hikma Pharmaceuticals PLC
Condensed consolidated statement of comprehensive income
H1 H1 FY
Notes 2011 2010 2010
$000 $000 $000
(Unaudited) (Unaudited) (Audited)
------------- ------------- -----------
Continuing operations
Revenue 3 394,759 357,694 730,936
Cost of sales 3 (222,141) (179,187) (373,592)
------------- ------------- -----------
Gross profit 3 172,618 178,507 357,344
Sales and marketing costs (56,988) (52,692) (106,673)
General and administrative
expenses (45,073) (37,536) (84,755)
Research and development
costs (11,459) (10,173) (23,608)
Other operating expenses
(net) (10,053) (3,828) (7,213)
------------- ------------- -----------
Total operating expenses (123,573) (104,229) (222,249)
Adjusted operating profit 60,317 73,154 143,025
Exceptional items
- Acquisition related
expenses 4 (6,055) (2,306) (7,705)
- Gains on revaluation of
previously held equity
interests 4 - 7,176 7,176
- Inventory related
adjustment 4 (1,203) - -
Intangible amortisation* 4 (4,014) (3,746) (7,401)
--------------------------- ------ ------------- ------------- -----------
Operating profit 49,045 74,278 135,095
Finance income 154 97 346
Finance expense (9,484) (6,519) (13,856)
Other income/(expense) 152 (382) (603)
------------- ------------- -----------
Profit before tax 39,867 67,474 120,982
Tax 5 (4,755) (12,856) (21,455)
------------- ------------- -----------
Profit for the period/year 35,112 54,618 99,527
------------- ------------- -----------
Attributable to:
Non-controlling interests 1,987 (53) 678
Equity holders of the
parent 33,125 54,671 98,849
35,112 54,618 99,527
============= ============= ===========
Cumulative effect of
change in fair value of
available for sale
investments (9) 41 75
Cumulative effect of
change in fair value of
financial derivatives (601) (180) (256)
Exchange difference on
translation of foreign
operations 14,381 (28,850) (19,532)
------------- ------------- -----------
Total comprehensive income
before tax relating to
components of other
comprehensive income 48,883 25,629 79,814
------------- ------------- -----------
Total comprehensive income
for the period/ year 48,883 25,629 79,814
============= ============= ===========
Attributable to:
Non-controlling interests 2,537 (633) (1,023)
Equity holders of the
parent 46,346 26,262 80,837
------------- ------------- -----------
48,883 25,629 79,814
============= ============= ===========
Earnings per share (cents)
Basic 7 17.1 28.5 51.4
============= ============= ===========
Diluted 7 16.7 27.9 50.2
============= ============= ===========
Adjusted basic 7 21.3 27.5 53.6
Adjusted diluted 7 20.8 26.9 52.4
============= ============= ===========
On this page and throughout this interim financial information
"H1 2011" refers to the six months ended 30 June 2011, "H1 2010"
refers to the six months ended 30 June 2010 and "FY 2010" refers to
the year ended 31 December 2010.
* Intangible amortisation comprises the amortisation on
intangible assets other than software.
Hikma Pharmaceuticals PLC
Condensed consolidated balance sheet
30 June 30 June 31 December
Notes 2011 2010 2010
$000 $000 $000
(Unaudited) (Unaudited) (Audited)
------------- ------------- ------------
Non-current assets
Intangible assets 8 294,804 265,521 269,120
Property, plant and
equipment 391,842 301,710 317,463
Investment in associated
companies 16 38,610 - -
Deferred tax assets 23,443 19,953 23,288
Available for sale
investments 468 583 477
Financial and other
non-current assets 11,050 548 11,357
------------- ------------- ------------
760,217 588,315 621,705
------------- ------------- ------------
Current assets
Inventories 9 269,490 171,445 182,192
Trade and other
receivables 10 273,239 238,944 228,703
Collateralised cash 2,510 7,045 3,573
Cash and cash equivalents 89,526 60,996 62,718
Other current assets 2,934 1,043 929
------------- ------------- ------------
637,699 479,473 478,115
------------- ------------- ------------
Total assets 1,397,916 1,067,788 1,099,820
============= ============= ============
Current liabilities
Bank overdrafts and loans 159,119 85,680 81,015
Obligations under finance
leases 3,727 1,112 2,251
Trade and other payables 11 146,747 117,817 127,555
Income tax provision 10,652 12,069 12,621
Other provisions 9,176 7,572 8,641
Other current liabilities 15,254 22,980 20,540
------------- ------------- ------------
344,675 247,230 252,623
------------- ------------- ------------
Net current assets 293,024 232,243 225,492
------------- ------------- ------------
Non-current liabilities
Long-term financial debts 12 231,999 98,543 78,040
Deferred income 318 348 335
Obligations under finance
leases 19,894 6,334 6,118
Deferred tax liabilities 12,353 13,593 12,404
------------- ------------- ------------
264,564 118,818 96,897
------------- ------------- ------------
Total liabilities 609,239 366,048 349,520
============= ============= ============
Net assets 788,677 701,740 750,300
============= ============= ============
Equity
Share capital 34,937 34,501 34,525
Share premium 277,440 275,203 275,968
Own shares (2,292) (2,251) (2,220)
Other reserves 469,029 387,517 435,649
------------- ------------- ------------
Equity attributable to
equity holders of the
parent 779,114 694,970 743,922
Non-controlling interest 9,563 6,770 6,378
------------- ------------- ------------
Total equity 788,677 701,740 750,300
============= ============= ============
Hikma Pharmaceuticals PLC
Condensed consolidated statement of changes in equity
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 interest equity
$000 $000 $000 $000 $000 $000 $000 $000 parent $000 $000 $000
-------- ------------ ------------ --------- --------- -------- -------- -------- ------------- ---------------- ---------
Balance at 1
January 2010
(Audited) 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
period - - - 54,671 54,671 - - - 54,671 (53) 54,618
Cumulative
effect
of change
in fair
value
of available
for sale
investments - - - 41 41 - - - 41 - 41
Cumulative
effect
of change
in fair
value
of financial
derivatives - - - (180) (180) - - - (180) - (180)
Realisation of
revaluation
reserve - (91) - 91 - - - - - - -
Currency
translation
loss - - (28,270) - (28,270) - - - (28,270) (580) (28,850)
-------- ------------ ------------ --------- --------- -------- -------- -------- ------------- ---------------- ---------
Total
comprehensive
income
for the
period - (91) (28,270) 54,623 26,262 - - - 26,262 (633) 25,629
Issue
of equity
shares - - - - - 265 2,418 - 2,683 - 2,683
Acquisition
of own
shares - - - - - - - (108) (108) - (108)
Cost of
equity
settled
employee
share
scheme - - - 2,090 2,090 - - - 2,090 - 2,090
Exercise
of employees
long term
incentive
plan - - - (60) (60) - - 60 - - -
Current and
deferred tax
arising on
share-based
payments - - - 632 632 - - - 632 - 632
Dividends
on ordinary
shares - - - (12,474) (12,474) - - - (12,474) - (12,474)
Acquisition of
subsidiaries - - - - - - - - - 31 31
-------- ------------ ------------ --------- --------- -------- -------- -------- ------------- ---------------- ---------
Balance
at 30
June 2010
(Unaudited) 33,920 4,175 (22,519) 371,941 387,517 34,501 275,203 (2,251) 694,970 6,770 701,740
Balance at 1
January 2010
(Audited) 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) 79,814
Issue
of equity
shares - - - - - 289 3,183 - 3,472 - 3,472
Acquisition
of own
shares - - - - - - - (107) (107) - (107)
Cost of
equity
settled
employee
share
scheme - - - 4,473 4,473 - - - 4,473 - 4,473
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 - - - (23,073) (23,073) - - - (23,073) - (23,073)
Acquisition of
subsidiaries - - - - - - - - - 29 29
-------- ------------ ------------ --------- --------- -------- -------- -------- ------------- ---------------- ---------
Balance at 31
December 2010
(Audited) 33,920 4,085 (12,080) 409,724 435,649 34,525 275,968 (2,220) 743,922 6,378 750,300
Profit
for the
period - - - 33,125 33,125 - - - 33,125 1,987 35,112
Cumulative
effect
of change
in fair
value
of available
for sale
investments - - - (9) (9) - - - (9) - (9)
Cumulative
effect
of change
in fair
value
of financial
derivatives - - - (601) (601) - - - (601) - (601)
Realisation of
revaluation
reserve - (91) - 91 - - - - - - -
Currency
translation
gain - - 13,831 - 13,831 - - - 13,831 550 14,381
-------- ------------ ------------ --------- --------- -------- -------- -------- ------------- ---------------- ---------
Total
comprehensive
income
for the
period - (91) 13,831 32,606 46,346 - - - 46,346 2,537 48,883
Issue
of equity
shares - - - - - 412 1,472 - 1,884 - 1,884
Acquisition
of own
shares - - - - - - - (112) (112) - (112)
Cost of
equity
settled
employee
share
scheme - - - 3,634 3,634 - - 3,634 - 3,634
Exercise
of employees
long term
incentive
plan - - - (40) (40) - - 40 - - -
Current and
Deferred tax
arising on
share-based
payments - - - (3,327) (3,327) - - - (3,327) - (3,327)
Dividends
on ordinary
shares - - - (14,497) (14,497) - - - (14,497) - (14,497)
Dividends
paid to
minority
shareholders - - - - - - - - - - -
Partial
disposal of
an investment
in a
subsidiary
(without loss
of control) 1,264 1,264 1,264 160 1,424
Issue of
equity shares
of
subsidiaries - - - - - - - - 488 488
-------- ------------ ------------ --------- --------- -------- -------- -------- ------------- ---------------- ---------
Balance
at 30
June 2011
(Unaudited) 33,920 3,994 1,751 429,364 469,029 34,937 277,440 (2,292) 779,114 9,563 788,677
======== ============ ============ ========= ========= ======== ======== ======== ============= ================ =========
Hikma Pharmaceuticals PLC
Condensed consolidated cash flow statement
H1 H1 FY
Note 2011 2010 2010
$000 (Unaudited) $000 (Unaudited) $000 (Audited)
----------------- ----------------- ---------------
Net cash from
operating
activities 13 19,220 65,306 152,540
Investing activities
Purchases of
property, plant and
equipment (33,199) (23,354) (49,121)
Proceeds from
disposal of
property, plant and
equipment 313 785 1,556
Purchase of
intangible assets (7,179) (1,156) (4,074)
Proceeds from
disposal of
intangible assets 66 - 566
Investment in
associated
companies (38,610) - -
Investment in
financial and other
non current assets 307 6 (10,800)
Proceeds from
available for sale
investments (net) - - 140
Acquisition of
subsidiary
undertakings, net
of cash acquired (105,825) (22,796) (23,000)
Payments of costs
directly
attributable to
acquisitions 4 (3,892) (2,306) (7,705)
Finance income 154 97 346
----------------- ----------------- ---------------
Net cash used in
investing
activities (187,865) (48,724) (92,092)
Financing activities
Increase/(decrease)
in collateralised
cash 1,063 (4,609) (1,140)
Increase in
long-term financial
debts 197,695 12,758 19,045
Repayment of
long-term financial
debts (51,488) (32,465) (59,177)
Increase in
short-term
borrowings 69,769 18,271 14,147
Decrease in
obligations under
finance leases (489) (1,557) (616)
Dividends paid (14,497) (12,474) (23,073)
Purchase of own
shares - (108) -
Interest paid (9,555) (6,320) (13,754)
Proceeds from issue
of new shares 1,772 2,683 3,365
Proceeds from
non-controlling
interest for capital
increase in
subsidiaries 488 - -
----------------- ----------------- ---------------
Net cash from/(used
in) financing
activities 194,758 (23,821) (61,203)
Net
increase/(decrease)
in cash and cash
equivalents 26,113 (7,239) (755)
Cash and cash
equivalents at
beginning of
period 62,718 65,663 65,663
Foreign exchange
translation
movement 695 2,572 (2,190)
----------------- ----------------- ---------------
Cash and cash
equivalents at end
of period 89,526 60,996 62,718
================= ================= ===============
Hikma Pharmaceuticals PLC
Notes to the condensed set of financial statements -
continued
1. General information
The financial information for the year ended 31 December 2011
does not constitute statutory accounts within the meaning of
Section 434 of the Companies Act 2006. Statutory accounts for the
year ended 31 December 2010, which were prepared under
International Financial Reporting Standards (IFRSs) issued by the
International Accounting Standards Board, have been filed with the
Registrar of Companies. The auditors' report on those accounts was
unqualified, did not draw attention to any matters by way of
emphasis and did not contain any statement under Section 498 (2) or
(3) of the Companies Act 2006.
2. Accounting policies
The unaudited condensed set of financial statements for the six
months ended 30 June 2011 have been prepared using the same
accounting policies and on a basis consistent with the audited
results for the year ended 31 December 2010. The financial
information has been prepared under the historical cost convention,
except for the revaluation to market value of certain financial
assets and liabilities.
Basis of preparation
The currency used in the preparation of the accompanying
consolidated financial statements is the US Dollar ($) as the
majority of the Group's business is conducted in US Dollars.
The Group's condensed consolidated financial statements included
in this half yearly financial report are prepared in accordance
with IAS 34 'Interim Financial Reporting' as adopted by the
European Union. They were approved by the Board on 24 August
2011.
Going concern
The Group has $751.8 million of banking facilities of which
$335.5 million were undrawn as at 30 June 2011. Of the undrawn
facilities, $172.2 million was committed. These facilities are well
diversified across the operating subsidiaries of the Group with a
number of financial institutions.
About 50% of the Group's short-term and undrawn long-term
facilities are of a committed nature.
We continue to expect the short-term facilities to be renewed
upon maturity. In addition the Group maintained cash balances of
$90 million as at 30 June 2011. 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 within the levels of
its facilities.
Although the current economic conditions may affect short-term
demand for our products, as well as placing pressure on customers
and suppliers which may face liquidity issues, the Group's
geographic spread, product diversity, large customer and supplier
base substantially mitigate these risks.
In addition, the Group operates in the relatively defensive
generic pharmaceuticals industry which we expect to be less
affected compared to other industries that are subject to greater
cyclical changes.
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 outlook.
Accordingly, they continue to adopt the going concern basis in
preparing the half- yearly condensed financial statement.
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.
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
primary segment information.
Segment information about these businesses is presented
below.
Six months ended
30 June 2011
(unaudited) Branded Injectables Generic Others Group
$000 $000 $000 $000 $000
---------- ------------ --------- -------- ----------
Revenue 199,623 116,105 76,376 2,655 394,759
Cost of sales (100,447) (72,555) (47,161) (1,978) (222,141)
---------- ------------ --------- -------- ----------
Gross profit 99,176 43,550 29,215 677 172,618
---------- ------------ --------- -------- ----------
Result
Adjusted segment
result 47,548 16,822 10,173 (1,591) 72,952
Exceptional items
:
- Acquisition
related expenses - (600) - - (600)
- Inventory
related
adjustment - (1,203) - - (1,203)
Intangible
amortisation* (2,345) (1,669) - - (4,014)
------------------- ---------- ------------ --------- -------- ----------
Segment result 45,203 13,350 10,173 (1,591) 67,135
========== ============ ========= ======== ==========
Adjusted
Unallocated
corporate
expenses (12,635)
Exceptional items
:
- Acquisition
related expenses (5,455)
------------------- ---------- ------------ --------- -------- ----------
Unallocated
corporate
expenses (18,090)
----------
Operating profit 49,045
Finance income 154
Finance expense (9,484)
Other income 152
----------
Profit before tax 39,867
Tax (4,755)
----------
Profit for the
period 35,112
==========
Attributable to:
Non-controlling
interest 1,987
Equity holders of
the parent 33,125
35,112
==========
Segment result is defined as operating profit for each
segment.
*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 certain
acquisition related expenses.
3. Business and geographical segments (continued)
Other information 30
June 2011 (unaudited) Branded Injectables Generic Others Group
$000 $000 $000 $000 $000
-------- ------------ -------- ------- ----------
Additions to property,
plant and equipment
(cost) 24,057 3,048 3,761 2,119 32,985
Acquisition of
subsidiary's
property, plant and
equipment (net book
value) - 50,342 - - 50,342
Additions to
intangible assets 6,191 988 - - 7,179
Intangible assets
arising on
acquisition - 18,060 - - 18,060
Total property, plant
and equipment and
intangible assets
(net book value) 415,339 226,018 33,969 11,320 686,646
Depreciation 9,648 3,749 2,363 480 16,240
Amortisation
(including software) 3,078 1,904 96 98 5,176
Balance sheet
Segment assets 859,181 370,078 137,807 30,850 1,397,916
======== ============ ======== ======= ==========
Segment liabilities 334,498 245,730 16,600 12,411 609,239
======== ============ ======== ======= ==========
Six months ended
30 June 2010
(unaudited) Branded Injectables Generic Others Group
$000 $000 $000 $000 $000
--------- ------------ --------- -------- ----------
Revenue 193,848 74,461 87,151 2,234 357,694
Cost of sales (91,675) (40,166) (45,384) (1,962) (179,187)
---------
Gross profit 102,173 34,295 41,767 272 178,507
--------- ------------ --------- -------- ----------
Result
Adjusted segment
result 49,460 11,836 26,286 (1,935) 85,647
Exceptional items :
- Gains on
revaluation of
previously held
equity interests 7,176 - - - 7,176
Intangible
amortisation* (2,302) (1,283) (161) - (3,746)
-------------------- --------- ------------ --------- -------- ----------
Segment result 54,334 10,553 26,125 (1,935) 89,077
========= ============ ========= ======== ==========
Adjusted
Unallocated
corporate
expenses (12,493)
Exceptional items :
- Acquisition
related expenses (2,306)
-------------------- --------- ------------ --------- -------- ----------
Unallocated
corporate
expenses (14,799)
----------
Operating profit 74,278
Finance income 97
Finance expense (6,519)
Other expense (382)
----------
Profit before tax 67,474
Tax (12,856)
----------
Profit for the
period 54,618
==========
Attributable to:
Non-controlling
interest (53)
Equity holders of
the parent 54,671
54,618
==========
Segment result is defined as operating profit for each
segment.
*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 certain
acquisition related expenses.
Other information 30
June 2010 (unaudited) Branded Injectables Generic Other Group
$000 $000 $000 $000 $000
-------- ------------ -------- ------- ----------
Additions to property,
plant and equipment
(cost) 17,797 2,074 2,785 698 23,354
Acquisition of
subsidiary's
property, plant and
equipment (net book
value) 24,437 - - - 24,437
Additions/(disposals)
to intangible assets 708 423 5 20 1,156
Intangible assets
arising on
acquisition 28,066 - - - 28,066
Total property, plant
and equipment and
intangible assets
(net book value) 392,698 134,441 31,164 8,928 567,231
Depreciation 8,739 2,692 2,181 526 14,138
Amortisation
(including software) 2,919 1,452 260 26 4,657
Balance sheet
Segment assets 766,483 164,463 118,475 18,367 1,067,788
======== ============ ======== ======= ==========
Segment liabilities 260,265 73,852 19,743 12,188 366,048
======== ============ ======== ======= ==========
Year ended
31 December 2010
(audited) 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
---------- ------------ --------- -------- ----------
Result
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 (603)
----------
Profit before tax 120,982
Tax (21,455)
Profit for the
year 99,527
==========
Attributable to:
Non-controlling
interest 678
Equity holders of
the parent 98,849
99,527
Segment result is defined as operating profit for each
segment.
*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 certain
acquisition related expenses.
Other information 31
December 2010
(audited) Branded Injectables Generic Other 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 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
======== ============ ======== ======= ==========
The following table provides an analysis of the Group's sales by
geographical market, irrespective of the origin of the
goods/services:
Sales revenue by geographical
market
H1 2011 H1 2010 FY 2010
$000 $000 $000
(Unaudited) (Unaudited) (Audited)
Middle East and North Africa 229,849 218,047 446,524
United States 120,013 100,116 204,389
Europe and Rest of the World 43,922 39,243 79,133
United Kingdom 975 288 890
394,759 357,694 730,936
Included in revenues arising from the Branded and Injectables
segments are revenues of approximately $43,301,000 (30 June 2010:
$39,226,000 and 31 December 2010: $99,371,000) which arose from the
Group's largest customer, based in Saudi Arabia.
4. Exceptional items and intangible amortisation
Exceptional items are defined as those that are material in
nature or amount and are non-recurring. Exceptional items are
disclosed separately in the condensed consolidated statement of
comprehensive income to assist in the understanding of the Group's
underlying performance.
H1 H1 FY
2011 2010 2010
$000 $000 $000
Acquisition related expenses (6,055) (2,306) (7,705)
Gains on revaluation of previously
held equity interests - 7,176 7,176
- Inventory related adjustment (1,203) - -
Exceptional items (7,258) 4,870 (529)
Intangible amortisation * (4,014) (3,746) (7,401)
Exceptional items and intangible
amortisation (11,272) 1,124 (7,930)
Tax effect 3,265 775 3,666
Impact on profit for the period/year (8,007) 1,899 (4,264)
*Intangible amortisation comprises the amortisation of
intangible assets other than software.
Acquisition related expenses relate to transaction and
integration costs incurred in acquiring the Baxter Healthcare
Multi-Source injectables business (MSI) in the USA. These are
mainly included in the unallocated corporate expenses. Further
details are set out in note 15 "Acquisition of subsidiaries". The
results of MSI have been included in the Injectables segment.
These costs mainly comprises of third party consulting services,
legal and professional fees.
$3.9 million (30 June 2010: $2.3 million and 31 December 2010:
$7.7 million) of costs have been classified as investing activities
in the cash flow statement relating to the cash outflow in respect
of these costs in the period.
The inventory related adjustments reflect the fair value uplift
(recognised in costs of sales) of the inventory acquired as part of
the MSI acquisition (refer to note 15).
In the prior year, acquisition related expenses related to
transaction costs incurred in acquiring Ibn Al Baytar, Al Dar Al
Arabia and MSI which was in the process of completion. These were
included in the unallocated corporate expenses.
Gains on revaluation of previously held equity interests related
to gains arising from the remeasurement to fair value of the
previously held equity interests in Ibn Al Baytar and Al Dar Al
Arabia. These were included within other operating expenses
(net).
5. Tax
H1 2011 H1 2010 FY 2010
$000 $000 $000
(Unaudited) (Unaudited) (Audited)
Current tax:
Foreign tax 4,423 15,007 27,037
Prior year adjustments 450 (882) (691)
Deferred tax (118) (1,269) (4,891)
4,755 12,856 21,455
6. Dividends
H1 2011 H1 2010 FY 2010
$000 $000 $000
(Unaudited) (Unaudited) (Audited)
------------ ------------
Amounts recognised as distributions
to equity holders in the period:
Final dividend for the year ended 31
December 2010 of 7.5 cents (2009: 6.5
cents) per share 14,497 12,473 12,473
Interim dividend for the year ended 31
December 2010 of 5.5 cents per share - - 10,600
14,497 12,473 23,073
The proposed interim dividend for the period ended 30 June 2011
is 5.5 cents (30 June 2010: 5.5 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:
H1 2011 H1 2010 FY 2010
$000 $000 $000
(Unaudited) (Unaudited) (Audited)
Earnings for the purposes of basic and
diluted earnings per share being net
profit attributable to equity holders
of the parent 33,125 54,671 98,849
Exceptional items 7,258 (4,870) 529
Intangible amortisation* 4,014 3,746 7,401
Tax effect of adjustments (3,265) (775) (3,666)
Adjusted earnings for the purposes
of adjusted basic and diluted earnings
per share being adjusted net profit
attributable to equity holders of the
parent 41,131 52,772 103,113
Number Number Number
Number of shares '000 '000 '000
Weighted average number of Ordinary
Shares for the purposes of basic
earnings per share 193,330 191,792 192,304
Effect of dilutive potential Ordinary
Shares :
Share options 4,878 4,059 4,551
Weighted average number of Ordinary
Shares for the purposes of diluted
earnings per share 198,208 195,851 196,855
H1 2011 H1 2010 FY 2010
Earnings Earnings Earnings
per share per share per share
Cents Cents Cents
Basic 17.1 28.5 51.4
-----------
Diluted 16.7 27.9 50.2
-----------
Adjusted basic 21.3 27.5 53.6
-----------
Adjusted diluted 20.8 26.9 52.4
-----------
*Intangible amortisation comprises the amortisation of
intangible assets other than software.
8. Intangible assets
Other
Product In acquisition
Marketing Customer related process Trade related
Goodwill rights relationships intangibles R&D names intangibles Software Total
$000 $000 $000 $000 $000 $000 $000 $000 $000
Cost
Balance
at 1 January
2010 156,066 8,826 64,804 23,746 4,276 6,401 3,214 12,902 280,235
Additions - 417 - 202 5 - - 541 1,165
Acquisition
of
subsidiaries 26,859 767 - 233 632 - - 256 28,747
Disposals - (51) - (5) - - - - (56)
Translation
adjustments (8,680) (954) (2,899) (1,332) (96) (890) (456) (395) (15,702)
Balance
at 30 June
2010 174,245 9,005 61,905 22,844 4,817 5,511 2,758 13,304 294,389
Cost
Balance
at 1 January
2010 156,066 8,826 64,804 23,746 4,276 6,401 3,214 12,902 280,235
Additions - 251 - 2,509 - - - 1,314 4,074
Acquisition
of
subsidiaries 26,859 - - 224 610 1,068 - 246 29,007
Disposals - (249) - (155) - - - - (404)
Translation
adjustments (5,240) (476) (2,067) (722) (55) (520) (232) (231) (9,543)
Balance at 31
December
2010 177,685 8,352 62,737 25,602 4,831 6,949 2,982 14,231 303,369
Additions - 521 - 6,170 - - - 488 7,179
Acquisition
of
subsidiaries 5,804 - - 12,195 - - 61 - 18,060
Disposals - - - (50) - - - - (50)
Translation
adjustments 3,243 468 694 771 11 528 244 197 6,156
Balance
at 30 June
2011 186,732 9,341 63,431 44,688 4,842 7,477 3,287 14,916 334,714
Amortisation
Balance
at 1 January
2010 (608) (2,402) (10,014) (3,977) (601) (38) (773) (6,126) (24,539)
Charge for
the year - (528) (2,119) (856) (141) (9) (93) (911) (4,657)
Acquisition
of
subsidiaries - - - (24) (432) - - (225) (681)
Translation
adjustments - 261 145 278 52 - 84 189 1,009
Balance
at 30 June
2010 (608) (2,669) (11,988) (4,579) (1,122) (47) (782) (7,073) (28,868)
Amortisation
Balance
at 1 January
2010 (608) (2,402) (10,014) (3,977) (601) (38) (773) (6,126) (24,539)
Charge for
the period - (817) (4,219) (1,760) (332) (88) (185) (1,941) (9,342)
Acquisition
of
subsidiaries - - - (211) (513) - - (217) (941)
Translation
adjustments - 125 154 140 21 (1) 39 95 573
Balance at 31
December
2010 (608) (3,094) (14,079) (5,808) (1,425) (127) (919) (8,189) (34,249)
Charge for
the period - (440) (2,118) (1,161) (140) (57) (98) (1,162) (5,176)
Translation
adjustments - (135) 39 (182) (24) (5) (59) (119) (485)
Balance
at 30 June
2011 (608) (3,669) (16,158) (7,151) (1,589) (189) (1,076) (9,470) (39,910)
Carrying
amount
At 30 June
2011 186,124 5,672 47,273 37,537 3,253 7,288 2,211 5,446 294,804
At 31
December
2010 177,077 5,258 48,658 19,794 3,406 6,822 2,063 6,042 269,120
At 30 June
2010 173,637 6,336 49,917 18,265 3,695 5,464 1,976 6,231 265,521
The current period intangibles arising from the acquisition of
subsidiaries relate to the acquisition of MSI, as set out below in
note 15.
The current period additions mainly relate to licences for
products.
9. Inventories
H1 2011 H1 2010 FY 2010
$000 $000 $000
(Unaudited) (Unaudited) (Audited)
Finished goods 85,670 55,942 50,829
Work-in-progress 33,329 30,816 29,592
Raw and packing materials 136,561 70,794 81,864
Goods in transit 13,930 13,893 19,907
269,490 171,445 182,192
Goods in transit include inventory held at third parties whilst
in transit between Group companies.
10. Trade and other receivables
30 June 30 June 31 December
2011 2010 2010
$000 $000 $000
(Unaudited) (Unaudited) (Audited)
Trade receivables 233,871 210,187 200,334
Prepayments 32,386 19,644 22,305
Value added tax recoverable 3,912 6,383 3,883
Interest receivable 701 217 223
Employee advances 2,369 2,513 1,958
273,239 238,944 228,703
11. Trade and other payables
30 June 30 June 31 December
2011 2010 2010
$000 (Unaudited) $000 (Unaudited) $000 (Audited)
----------------- -----------------
Trade payables 102,341 74,675 74,936
Accrued
expenses 31,973 30,484 42,428
Employees'
provident
fund * 3,072 1,943 2,625
VAT and sales
tax payables 845 3,496 452
Dividends
payable ** 2,228 2,320 2,256
Social
security
withholdings 1,230 795 1,130
Income tax
withholdings 2,456 1,434 2,074
Other payables 2,602 2,670 1,654
----------------- -----------------
146,747 117,817 127,555
* The employees' provident fund liability represents outstanding
contributions to Hikma Pharmaceuticals Limited - Jordan retirement
benefit plan, on which the fund receives 5% interest.
** Dividends payable includes $2,044,526 (30 June 2010:
$2,100,000 and 31 December 2010: $2,072,000) due to the previous
shareholders of Arab Pharmaceutical Manufacturing.
12. Long-term financial debts
30 June 30 June 31 December
2011 2010 2010
$000
$000 (Unaudited) $000 (Unaudited) (Audited)
Total loans 285,809 131,954 114,235
Less: current
portion of loans (53,810) (33,411) (36,195)
Long-term financial
loans 231,999 98,543 78,040
Breakdown by
maturity:
Within one year 53,810 33,411 36,195
In the second year 70,930 40,187 34,193
In third year 45,271 32,490 26,700
In the fourth year 54,454 15,579 6,167
In the fifth year 49,987 3,044 3,735
Thereafter 11,357 7,243 7,245
285,809 131,954 114,235
The increase of long term -debts is mainly due to the new loans
of $139 million withdrawn to finance the new acquisitions of MSI,
Unimark Remedies Limited and Hubei Haosun Pharmaceutical Co.Ltd
(Haosun).
13. Net cash from operating activities
H1 H1 FY
2011 2010 2010
$000
$000 (Unaudited) $000 (Unaudited) (Audited)
Profit before tax 39,867 67,474 120,982
Adjustments for:
Depreciation, amortisation and
impairment of:
Property, plant and equipment 16,240 14,138 29,091
Intangible assets 5,176 4,657 9,342
Gain on revaluation of
previously held equity
interest - (7,176) (7,176)
Loss on disposal of property,
plant and equipment 17 57 376
(Gains)/losses on disposal of
intangible assets (17) 56 (162)
Movement on provisions 535 681 2,488
Movement on deferred income (16) (146) (159)
Cost of equity settled
employee share scheme 3,634 2,090 4,473
Payments of costs directly
attributable to acquisitions
* 3,892 2,306 7,705
Finance income (154) (98) (346)
Interest and bank charges 9,484 6,519 13,856
Cash flow before working
capital 78,658 90,558 180,470
Change in trade and other
receivables (35,947) (5,152) 10,689
Change in other current assets (1,775) 208 322
Change in inventories (31,145) (9,144) (19,295)
Change in trade and other
payables 15,486 5,998 16,102
Change in other current
liabilities (1,220) 817 (3,091)
---------------- ----------------
Cash generated by operations 24,057 83,285 185,197
Income tax paid (4,837) (17,979) (32,657)
Net cash generated from
operating activities 19,220 65,306 152,540
* Please refer to note 4
14. Related party balances
Intra-group transactions have been eliminated on consolidation
and are not disclosed in this note.
During the period, the Group had the following relationships and
entered into the following transactions with related parties:
Darhold Limited: is a related party of the Group because it is
one of the major shareholders of Hikma Pharmaceuticals PLC with
ownership percentage of 29.3% at 30 June 2011 (30 June 2010: 29.6%
and 31 December 2010: 29.5%).
Other than dividends (as paid to all shareholders), there were
no transactions between the Group and Darhold Limited during the
period.
Capital Bank - Jordan: is a related party of the Group because
during the period three board member of the Bank are also board
members of Hikma Pharmaceuticals PLC. Total cash balances at
Capital Bank - Jordan were USD 462,000 (30 June 2010: USD 233,000
and 31 December 2010: USD 2,169,000). Loans and overdrafts granted
by Capital Bank to the Group amounted to USD 372,000 (30 June 2010:
USD 125,000 and 31 December 2010: USD 48,000) with interest rates
ranging between 9 % and 3 month LIBOR + 3. Total interest expense
incurred against Group facilities was USD 9,000 (H1 2010: USD 6,000
and FY 2010: USD 18,000). Total interest income received was Nil
(H1 2010: Nil and 2010 FY: USD 8,000) and total commission paid in
the period was USD 16,000 (H1 2010: USD 14,000 and 2010: USD
76,000).
Jordan International Insurance Company: is a related party of
the Group because one board member of the insurance company is also
a board member of Hikma Pharmaceuticals PLC. Total insurance
premiums paid by the Group to Jordan International Insurance Co
during the period were USD 2,329,000 (H1 2010: USD 1,868,000 and FY
2010: USD 2,166,000). The Group's insurance expense for Jordan
International Insurance Co contracts in the period was USD
1,953,000 (H1 2010: USD 1,548,000 and FY 2010: USD 2,481,000). The
amounts due to Jordan International Insurance Co at 30 June 2011
were USD 272,000 (30 June 2010: USD 74,000 and 31 December 2010:
USD 66,000).
Labatec Pharma: is a related party of the Group because it is
owned by Mr. Samih Darwazah. During the period to 30 June 2011 the
Group total sales to Labatec Pharma amounted to USD Nil (H1 2010:
USD Nil and FY 2010: USD 414,000) and the Group total purchases
from Labatec Pharma amounted to USD 1,177,000 (H1 2010: USD 139,000
and FY 2010 USD 1,373,000). At 30 June 2011 the amount owed to
Labatec Pharma by the Group was USD 1,269,000. The amount owed by
Labatec Pharma to the Group was (30 June 2010: USD 5,000 and 31
December 2010: USD 193,000).
Mr. Yousef Abd Ali: Mr. Yousef Abd Ali is a related party of the
Group because he holds 33% of Hikma Liban SARL in Lebanon. The
amount owed to Mr. Yousef by the Group as at 30 June 2011 was USD
161,000 (30 June 2010: USD 161,000 and 31 December 2010: USD
161,000).
King and Spalding: is a related party of the Group because the
partner of the firm is a board member and company secretary of
West-ward Pharmaceutical Corp. King and Spalding is an outside
legal counsel firm that handles general legal matters for
West-ward. During the period to June 2011 fees of USD 951,000 (H1
2010: USD 47,000 and FY 2010: USD 927,000) were paid for legal
services provided.
15. Acquisition of subsidiaries
On 2 May 2011, the Group completed the acquisition of 100% of
Baxter Healthcare Corporation's Multi-Source Injectables (MSI)
business for cash consideration of $103,839,000 and deferred
consideration of $12,684,000 of which $11,542,000 is a discounted
value of non interest bearing note and due in two payments,
February 2012 and November 2012. This deferred consideration has
been treated as a financial liability in accordance with IAS 32
Financial Instruments: Presentation and IFRS 3 revised (2008):
Business Combinations.
The purpose of the acquisition was to significantly enhance the
scale and scope of Hikma's global Injectables platform.
The acquisition was a trade and asset based transaction. It is
considered a business combination in accordance with IFRS 3 revised
(2008): Business Combinations as Hikma's wholly owned subsidiary
West-Ward Pharmaceuticals acquired an integrated set of activities
and assets that can be managed for the purpose of providing a
return to the shareholders.
Due to the timing of the acquisition, closing on 2 May 2011, the
fair value and goodwill arising on acquisition stated below are
considered to be provisional.
The goodwill arising represents the synergies that will be
obtained by integrating MSI into the existing business and
increasing the scale of Hikma's Injectables business.
The Group's condensed consolidated statement of comprehensive
income for the period ended 30 June 2011 includes acquisition
related costs amounting to $5,455,000 and the amortisation of
prepaid integration costs of $600,000 and a fair value inventory
adjustment of $1,203,000.
The net assets acquired in the transaction and the provisional
goodwill arising are set out below:
Fair value
Multi-Source Injectables Book value adjustment Fair value
$000 $000 $000
Product rights - 12,195 a 12,195
Other intangible assets - 61 61
Property, plant and equipment 125,263 (74,921) b 50,342
Inventories 48,312 4,235 c 52,547
Prepaid expenses 7,906 - 7,906
Other current assets 204 231 d 435
Deferred taxes asset - 3,340 e 3,340
Other current liabilities (985) - (985)
Capital lease obligations (10,483) (4,639) f (15,122)
Identifiable net assets 170,217 (59,498) 110,719
Consideration 116,523
Less: identifiable net
assets (110,719)
Goodwill 5,804
Consideration is satisfied by :
Cash 103,839
Deferred consideration 12,684
116,523
Cash consideration 103,839
Cash and cash equivalents
acquired -
Net cash outflow arising on
acquisition 103,839
a. Product rights relating to thirty six product licences and
approvals has been valued based on the type of rights acquired. A
discounted cashflow approach has been taken based on excess
earnings by product group, applying a discount rate applicable for
any market participant.
Useful lives of 10 - 15 years have been determined.
b. The property, plant and equipment acquired have been valued
by a third party expert at current market values.
c. Inventories have been valued as follows:
a. Raw materials at the current replacement cost.
b. Finished goods and work in process at the estimated selling
prices less a cost to dispose and complete and less a reasonable
profit attributable to selling effort.
d. Other current assets include back orders which have been
valued by estimating the amount of expected profit that is
attributable to the efforts of the seller.
e. Taxable temporary differences have been identified by
reference to IAS 12 "income tax"
f. Finance lease obligations acquired have been revalued using a
discounted future cash flow method and applying the Company's
incremental borrowing rate as the discount rate.
As part of the acquisition West-Ward was assigned a long term
API supply agreement that contains fixed minimum purchase
obligations. The Company is in the process of evaluating whether
any fair value adjustments should be recorded with respect to this
contract. The contract contains a clause that anticipates
termination in certain market conditions.
Goodwill recognised is expected to be deductible for income tax
purposes.
Full year impact of acquisition:
The revenue and net loss excluding pre tax transaction costs of
$5.4 million of MSI from the date of the acquisition that is
included in the Group's condensed consolidated statement of
comprehensive income for the period amounted to $25,528,028 and
$1,470,000 respectively.
If the acquisition of MSI had been completed on the first day of
the financial year, the Group's revenues for the period would have
been approximately $452,730,000 and the Group's profit attributable
to equity holders of the parent would have been approximately
$36,225,000.
The appropriate additional contribution 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
$000 $000
MSI 57,971 3,100
57,971 3,100
16. Investment in Associates
On April 15, 2011 the Group acquired a non controlling interest
of 23.07% in the Indian company Unimark Remedies Limited through
the subscription of new equity for a cash consideration of $ 33.6
million. Through this strategic partnership, Hikma and Unimark will
collaborate on the development of strategic APIs and ANDAs.
Unimark's strong technical and R&D capabilities will complement
Hikma's in-house R&D efforts and are expected to enable Hikma
to bring more products in more therapeutic categories to market
globally.
On June 28, 2011 the Group acquired a non controlling interest
of 30% in Hubei Haosun Pharmaceutical Co.Ltd (Haosun) through the
subscription of new equity for a cash consideration of $5
million.
Through this partnership Hikma gains access to a high quality,
long term source of API, particularly in the strategically
important area of oncology.
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(1) 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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