Preliminary Announcement for
PRESS RELEASE
Hikma's diversified business delivers record sales and 36% earnings growth in 2009
17 March 2010 - Hikma Pharmaceuticals PLC ("Hikma") (LSE: HIK) (NASDAQ DUBAI: HIK), the fast growing multinational pharmaceutical group, today reports its preliminary results for the year ended 31 December 2009.
|
Summary P&L ($ million) |
2009 |
2008 |
Change |
|
|
|
|
|
|
Revenue |
636.9 |
580.7 |
+9.7% |
|
Gross profit |
304.4 |
256.5 |
+18.7% |
|
Operating profit |
107.3 |
80.7 |
+33.0% |
|
Profit attributable to shareholders |
77.7 |
57.1 |
+36.0% |
|
Diluted earnings per share (cents) |
40.1 |
29.6 |
+35.5% |
2009 Highlights
· Delivered high quality sales growth
o Revenues up 12.5% on a constant currency basis(1)
o Branded growth continued to outperform the MENA market
o Generics sales growth evidences successful turnaround
o Strong pick up in Injectables sales in the second half of the year
· Control of costs across the Group, while investing for future growth
o Gross margin improvement to 47.8%, up from 44.2% in 2008, ahead of management expectations for the year
o Operating margin increased to 16.8%, up from 13.9% in 2008
· Continued new product delivery across all countries and markets
o 129 products launched
o 114 product approvals
· Excellent working capital management
o Significant increase in operating cash flow to reach $119.0 million
o Strong growth in cash conversion to 18.7% of sales, compared to 12.9% in 2008
· Strong balance sheet
o Net debt decreased by $54.0 million through December 2009 to $116.9 million
o Leverage ratios remain low (Net debt/EBITDA: 0.8x, Net debt/Equity: 0.17x)
(1) Calculations on a constant currency basis have been made by retranslating the 2009 results at the average exchange rates experienced by the Group in 2008 and comparing these to 2008 actuals.
Said Darwazah, Chief Executive Officer of Hikma, said:
"In 2009 Hikma significantly outpaced the slowing global healthcare market and, despite difficult worldwide economic conditions, achieved record results, with 36% growth in diluted earnings per share.
Our Branded business continues to outperform the MENA pharmaceutical market and we have achieved market share gains in key markets. We are very pleased with the rebound in the performance of our US Generics business under our strong US management team. As expected, growth in our Injectables business improved in the second half and we are confident that considerable scope remains for us to grow this business in 2010.
I am very excited by the opportunities we have to expand our business in 2010. We are continuing to review several new business development opportunities against a strict measure of strategic fit and shareholder value creation. Overall, I am confident that we will continue to deliver on our track record of growth."
Enquiries
Hikma Pharmaceuticals PLC
Susan Ringdal, Investor Relations Director Tel: +44 (0)20 7399 2760
Brunswick Group
Jon Coles / Justine McIlroy Tel: +44 (0)20 7404 5959
About Hikma
Hikma Pharmaceuticals PLC is a fast growing multinational pharmaceutical group focused on developing, manufacturing and marketing a broad range of both branded and non-branded generic and in-licensed products. Hikma's operations are conducted through three businesses: "Branded", "Injectables" and "Generics" based principally in the Middle East and North Africa ("MENA") region, where it is a market leader, the United States and Europe. In 2009, Hikma achieved revenues of $637 million and profit attributable to shareholders of $78 million. For news and other information, please visit www.hikma.com.
Business and financial review
Group performance
Revenue for the Group increased by 9.7% to $636.9 million, compared to $580.7 million in 2008. During the period our Branded business continued to perform well and we saw a considerable improvement in our US Generics business compared to 2008. These strong performances were partially offset by a slight decline in Injectables revenues compared to 2008, reflecting the impact of negative foreign exchange movements and our strategic decision to curtail private label sales in the US.
Exchange rate movements had a negative impact on Group revenue of approximately $16.3 million, or 2.6%, and on Group operating profit of approximately $8.3 million, or 7.8%. The impact on sales resulted primarily from the strengthening of the US Dollar relative to the Euro, Algerian Dinar, Sudanese Pound and Egyptian Pound. The impact on operating profit resulted from the strengthening of the US Dollar relative to the Algerian Dinar, Sudanese Pound and Egyptian Pound. On a constant currency basis, Group revenues increased by 12.5%.
The Branded business continues to represent 55% of Group sales and the combined Branded and Injectables sales in MENA now make up 63.5% of total Group sales.
|
Revenue by segment |
2009 |
2008 |
|
Branded |
55.4% |
55.3% |
|
Injectables |
22.6% |
25.7% |
|
Generics |
21.2% |
18.2% |
|
Revenue by region |
2009 |
2008 |
|
MENA |
63.5% |
63.0% |
|
US |
24.0% |
22.5% |
|
Europe and rest of world |
12.5% |
14.5% |
The Group's gross profit increased by 18.7% to $304.4 million, compared to $256.5 million in 2008. Group gross margin was 47.8%, compared to 44.2% in 2008, and well ahead of the targeted two percentage point improvement that we set at the beginning of the year. This improvement primarily reflects the increase in profitability in our Generics business, which was driven by strategic price increases across our portfolio and a shift in product mix. Production efficiencies and our continued efforts to optimise our API sourcing also delivered cost benefits during the year.
Group operating expenses grew by 12.1% to $197.1 million, compared to $175.8 million in 2008, but as a percentage of sales remained relatively stable at 31.0%, compared to 30.3% in 2008. The paragraphs below address the Group's main operating expenses in turn.
Group sales and marketing expenses grew more slowly than Group sales during the year, increasing by 8.3% to $98.1 million, compared to $90.6 million in 2008. Consequently sales and marketing expenses decreased slightly as a percentage of sales from 15.6% in 2008 to 15.4%. This reflects better control of sales and marketing expenses in the Branded business, despite continued investment in developing our sales and marketing capabilities across the region, and strong growth in the Generics business, with its lower associated sales and marketing costs.
General and administrative expenses increased by 17.3% to $66.7 million, compared to $56.9 million in 2008. This is due to an increase in the cost of group-wide employee compensation and incentive schemes and an increase in bad debt provisions of approximately $2 million. General and administrative expenses as a percentage of sales increased to 10.5%, from 9.8% in 2008.
Investment in R&D decreased by 24.0% to $16.8 million, with total investment in R&D now representing 2.6% of Group revenue, compared to 3.8% in 2008. The decline in 2009 came from reduced investment in bioequivalence studies for our US Generics business and increased emphasis on in-licensing and acquisition of new products. Going forward, we expect to increase our investment in R&D as a percentage of sales as we re-focus our efforts on developing our global product portfolio and on the fast growing field of oncology.
Other net operating expenses increased by $9.3 million to $15.5 million in 2009. This increase is due primarily to an increase in provisions for slow moving items and foreign exchange losses resulting mainly from the depreciation in the Algerian and Sudanese currencies and the Euro.
Operating profit for the Group increased by 33.0% to $107.3 million, compared to $80.7 million in 2008. Our Group operating margin improved by three percentage points to 16.8% compared to 13.9% in 2008.
Branded
2009 highlights:
· Branded revenues up 13.1% in constant currency
· Strong demand for our leading anti-infectives
· Successful development of our cardiovascular and diabetes business
· Excellent progress in the rollout of key in-licensed products
Branded revenues increased by 9.9% in 2009 to $352.7 million, compared to $320.8 million in 2008. In constant currency, Branded revenues increased by 13.1%. Prioritising high quality sales and continued investment in developing our sales and marketing capabilities helped to increase customer demand across most Branded markets and to develop some of our newer markets including Iraq, Egypt, Sudan and Libya. We continued to focus on promoting new and recently launched products in key therapeutic areas and on building greater brand recognition across the MENA region.
As a result of these efforts, Hikma is the largest regional pharmaceutical company in the MENA region and the fifth largest pharmaceutical company overall in the MENA region, with a market share of 3.7%, up from 3.4% at the end of 2008. (2)
(2) All market data sourced from IMS Health, YTD December 2009. Private retail sales only include Algeria, Jordan, Kuwait, Egypt, Tunisia, Morocco, UAE, Lebanon and Saudi Arabia.
Our business in Algeria performed well in 2009, considering regulatory changes introduced during the year. At the end of December, our market share in Algeria had increased to 6.9%, compared to 6.4% at the end of December 2008, and we improved our market position. At the end of December 2009, Hikma was the second largest pharmaceutical company and the largest generic pharmaceutical manufacturer by value in the Algerian market. We have expanded our product portfolio during the year, which now includes cardiovascular products such as Blopress® (candesartan) and Iminopril® (imidapril), the oral diabetes products Actos® (pioglitazone) and Glorion® (glimepiride), and the dyslipidemia product Torvast® (atorvastatin).
We expect that the recent regulatory changes in Algeria, which included government imposed limitations on imports and sales, reductions in the pricing of locally produced products and the need to trade through confirmed letters of credit, will continue to impact the pharmaceutical market in Algeria in 2010. In the past we have demonstrated our ability to manage disruptions in this frequently changing environment. We expect that the expansion of our local production capacity, the optimisation of our sales channels and our enhanced sales and marketing efforts will enable us to address these issues and continue to perform ahead of the market.
In Saudi Arabia, our specialist cardiovascular sales team is focusing on building a leading position in the treatment of chronic heart conditions and diabetes through the promotion of key products like Blopress®, Actos® and Glorion®. At the same time, we continue to see steady demand for our leading anti-infectives in this market. At the end of December, our market share in Saudi Arabia had increased to 5.4%, compared to 4.9% at the end of December 2008. We are now the fourth largest pharmaceutical company by value in the Saudi market, compared to the fifth largest at the end of December 2008.
In Jordan we have maintained our position as the market leader with a market share of 12.9%, up from 12.4% at the end of December 2008. We delivered a strong performance in Jordan during the period supported by strong sales of our leading anti-infectives and tender sales.
In Egypt, we delivered strong growth across most of our product portfolio and began the rollout of some of our key Branded products, including Actos®, Tanatril® (imidapril) Blopress®, and Omnicef®. At the end of December, our market share in Egypt was stable at 1.4%.
Other markets that performed well during the year were Iraq, Sudan, Libya and Lebanon, where we benefited from more favourable operating environments, strong demand for our own brands, and the launches of some of our leading in-licensed products.
Revenue from in-licensed products grew by 24.9% in 2009 to $133.6 million, representing 37.9% of Branded sales. Actos® has now been launched in 13 markets, Blopress® has been launched in 15 markets, and Blopress Plus® and Takepron® have been launched in 9 markets. Our sales and marketing teams are working hard to establish these products as leading cardiovascular and diabetes brands in the MENA through a combination of medical education programmes, sponsorship of scientific conferences and targeted marketing campaigns.
We continue our efforts to develop our portfolio of in-licensed products, evidenced by the signing of three new licensing agreements during the year. In June we signed an agreement with Teikoku Pharma USA for our own brand of Lidoderm®, the first and only US FDA approved patch for post-herpetic neuralgia. This agreement covers the territories of Algeria, Morocco, Iraq, Libya, Sudan, and Tunisia. In July, we signed two agreements with Faes Farma SA, a Spanish manufacturing company - one for the manufacturing and
marketing of mesalazine, a generic product used for the treatment of inflammatory intestinal disease, and one for the license to manufacture and market the novel anti-histamine Bilastine®.
In December 2009, Astellas Pharma Europe, Ltd. granted Hikma the license to promote and distribute Advagraf®, Astellas' prolonged-release once-daily formulation of Prograf®, the immunosuppressant tacrolimus, in the MENA region. Through this agreement, Astellas grants exclusive rights to Hikma for the distribution and promotion of Advagraf® across 17 MENA countries. Hikma will also continue to distribute and promote Prograf® in the same territories.
In early January 2010, we signed an exclusive agreement to represent BioCryst, a US-based biotechnology company, in respect of its anti-viral product Peramivir for pandemic flu treatment stockpiling opportunities with governments in MENA region.
All of these agreements reflect our position as the partner of choice for marketing branded products in the region.
In 2009, the Branded business launched a total of 71 products across all markets, including 6 new compounds and 18 new dosage forms and strengths. The Branded business also received 69 regulatory approvals across the region, including 10 for new products.
Gross profit in the Branded business increased by 8.6% to $187.6 million, compared to $172.8 million in 2008. The Branded business's gross margin declined slightly to 53.2%, compared to 53.9% in 2008, reflecting the depreciation of the Algerian Dinar, Sudanese Pound and Egyptian Pound
Branded operating profit increased by 4.5% to $91.4 million, compared to $87.5 million in 2008. Operating margin in the Branded business was 25.9%, compared to 27.3% in 2008. This change is mainly due to the negative impact of exchange rates described above.
In 2010, we expect low double digit revenue growth in our Branded business, with sales spread more evenly over the course of the year than in previous years, reflecting a shift in the geographic and product sales mix. If foreign exchange rates remain stable in 2010, we expect Branded operating margins to be broadly in line with 2009.
Injectables
2009 highlights:
• Injectables revenues down 3.5% to $144.1 million
• 14% growth in Injectables sales in the MENA region
• Strategic decision to curtail private label sales in the US
• Successful FDA inspection of our sterile manufacturing facilities in Portugal with no observations
Injectables revenues across all regions recovered in the second half of the year, enabling us to close the year only slightly down on 2008, with sales of $144.1 million, compared to $149.3 million in 2008. The slight decline in full year sales was due primarily to our decision to curtail private label sales in our US business and the depreciation in the Algerian and Sudanese currencies and the Euro.
|
Injectables revenue by region |
2009 |
2008 |
|
Europe |
45.0% |
46.8% |
|
US |
11.8% |
16.6% |
|
MENA |
43.2% |
36.6% |
MENA Injectables sales increased by 14.0% to $62.3 million, compared to $54.7 million in 2008. On a constant currency basis, MENA Injectables sales grew by 18.5%. This increase is attributed to strong growth in Iraq and Algeria, an increasing contribution from existing markets like Lebanon and Jordan, and an initial contribution from newly launched oncology products.
Having successfully built a hospital sales force in the US, we now have greater capability to market our own products in this market. In the second half of the year we more than doubled own product sales, benefiting from a new supply agreement signed with a leading group purchasing organisation and from new product launches. Due to a strategic decision to curtail private label sales (approximately $11 million in 2008), US injectables sales declined year on year to $17.0 million, from $24.8 million in 2008.
European injectable sales reached $64.8 million in 2009, down 7.3% from $69.9 million in 2008. The decline is attributed to the depreciation of the Euro, a loss of $3.6 million in sales from a discontinued in-licensed product and continued pricing pressure in Germany, our largest market. This was partially offset by increased sales from new product launches and an increase in market share in some of our newer markets.
In 2009, the Injectables business launched a total of 55 products across all markets, including 16 new compounds and 26 new dosage forms and strengths. The Injectables business also received a total of 41 regulatory approvals across all regions and markets, including 24 in MENA, 9 in Europe and 8 in the US.
Injectables gross profit decreased by 0.7 % to $62.9 million, compared to $63.4 million in 2008, with gross margin increasing to 43.7%, compared to 42.4% in 2008. The increase in margin reflects the increase in sales from the MENA region as a percentage of total Injectables sales.
Injectables operating profit decreased by 30.6% to $15.3 million, compared to $22.1 million in 2008. Injectables operating margin decreased to 10.6% in 2009, down from 14.8% in 2008. This decline is explained by lower sales in the US and Europe, increasing operating expenses relating to higher sales and marketing expenses in MENA and the US, and an increase in foreign exchange losses.
Following the investments we have been making in our Injectables business in recent years, we expect strong growth in Injectables sales in 2010 driven by our expanding product portfolio, increasing demand for contract manufacturing and continuing momentum in sales, particularly in the MENA region and the US.
Generics
2009 highlights:
· Delivered significant improvement in Generics revenues, up 27.8%
· More than doubled gross margin to 38.9%, up from 18.3% in 2008
Revenue in our Generics business increased by 27.8% to $135.1 million, compared to $105.7 million in 2008. This strong performance reflects the actions of the strengthened US management team and in particular focused sales, marketing and operational improvements. Over the past eighteen months we have rationalised our product portfolio, increased our focus on our higher margin products and implemented price increases across our portfolio. Through focused sales targeting and improved service levels, we have been developing better relationships with key wholesale and retail customers, and are consequently improving the predictability of our revenue streams. At the same time our operations have become more efficient.
The strong performance also reflects the changing competitive landscape in the US. The absence of some of our competitors from the market has created new opportunities, increasing demand across our product portfolio and reducing our reliance on any one product. Demand has been particularly strong for the anti-infectives we produce at our FDA approved facilities in Jordan and Saudi Arabia. During 2009 we tripled sales of anti-infectives produced at these facilities.
All of these actions led to an increase in Generics gross profit of 172.1% to $52.5 million, compared to $19.3 million in 2008. Gross margin more than doubled from 18.3% in 2008 to 38.9% in 2009. Consequently, the Generics segment achieved an operating profit of $25.0 million in 2009, compared to an operating loss of $5.8 million in 2008. Generic operating margins reached 18.5% in 2009.
In 2009, the Generics business launched 2 new compounds in 3 new dosage forms and strengths.
Having returned to profitability in our Generics business in 2009, we are confident that this business will continue to perform well in 2010 and currently expect high single-digit sales growth for the full year.
Other businesses
Other businesses primarily comprise Arab Medical Containers, a manufacturer of pharmaceutical packaging, and International Pharmaceuticals Research Centre, which conducts bio-equivalency studies. These businesses, which supply third parties as well as other Group operations, had aggregate revenues of $5.1 million, compared with aggregate revenue of $4.8 million in 2008. This represented 0.8% of Group revenues in 2009.
These Other businesses delivered an operating loss of $2.3 million in 2009, compared to an operating loss of $3.7 million in 2008. The slight improvement can be attributed to increased efficiencies in corporate research and development costs.
Research & Development (3)
(3) Products are defined as pharmaceutical compounds sold by the Group. New compounds are defined as pharmaceutical compounds not yet launched by the Group and existing compounds being introduced into a new segment.
The Group's product portfolio continues to grow. In 2009 we launched 24 new compounds, expanding the Group portfolio to 382 compounds in 795 dosage forms and strengths. We manufacture and/or sell 40 of these compounds under-license.
Across all businesses and markets, a total of 129 products were launched. In addition, the Group received 114 approvals.
|
|
Total marketed products |
Products launched in 2009 |
|||
|
|
Compounds |
Dosage forms and strengths |
New compounds |
New dosage forms and strengths |
Total launches across all countries in 2009 (4) |
|
|
|
|
|
|
|
|
Branded |
245 |
472 |
6 |
18 |
71 |
|
|
|
|
|
|
|
|
Injectables |
88 |
215 |
16 |
26 |
55 |
|
|
|
|
|
|
|
|
Generics |
49 |
108 |
2 |
3 |
3 |
|
|
|
|
|
|
|
|
Group |
382 |
795 |
24 |
47 |
129 |
|
|
|
|
|
|
|
(4) Totals include all compounds and formulations that are either launched, approved or pending approval across all markets.
|
|
Products approved in 2009 |
Products pending approval as at 31 Dec 2009 |
||||
|
|
New compounds |
New dosage forms and strengths |
Total approvals across all countries in 2009* |
New compounds |
New dosage forms and strengths |
Total pending approvals across all countries as of 31 Dec 20094 |
|
|
|
|
|
|
|
|
|
Branded |
10 |
10 |
69 |
47 |
97 |
2495 |
|
|
|
|
|
|
|
|
|
Injectables |
20 |
14 |
41 |
45 |
62 |
2475 |
|
|
|
|
|
|
|
|
|
Generics |
3 |
4 |
4 |
24 |
31 |
31 |
|
|
|
|
|
|
|
|
|
Group |
33 |
28 |
114 |
116 |
190 |
527 |
|
|
|
|
|
|
|
|
To ensure the continuous development of our product pipeline, we submitted 192 regulatory filings in 2009 across all regions and markets. As of 31 December 2009, we had a total of 527 pending approvals(5) across all regions and markets.
(5) Includes all submissions made for the first time in a particular market, but excludes re-submissions, which have historically been included in this calculation.
We estimate the approximate addressable market for our portfolio of pending approvals to be approximately $27 billion, based on the 2009 full year sales of the currently marketed equivalent products in the markets covered by the pending approvals.
At 31 December 2009, we had a total of 71 new products under development, the majority of which should receive several marketing authorisations for differing strengths and/or product forms over the next few years.
Net finance expense
Net finance expense decreased to $12.3 million, compared to $16.7 million in 2008 due to lower interest rates and lower net debt levels as explained in the operating cash flow and investment section below.
Profit before tax
Profit before taxes for the Group increased by 48.0% to $94.8 million, compared to $64.0 million in 2008.
Tax
The Group incurred a tax expense of $15.5 million in 2009. The effective tax rate was 16.3%, compared to 10.8% in 2008. The increase in the effective tax rate reflects the return to profitability in our US Generics business.
Non-controlling interest
The profit attributable to minority interest was negative $1.6 million in 2009. This primarily arose on profits in our 51% owned subsidiary in Sudan.
Profit for the year
The Group's profit attributable to equity holders of the parent increased by 36.0% to $77.7 million. On constant currency, growth in profit attributable to equity holders of the parent increased by 49.9%.
Adjusted profit for the year
Excluding the amortisation of intangible assets (other than software), the Group's adjusted profit for the year attributable to equity holders of the parent increased by 24.1% to $83.6 million for the year ended 31 December 2009, compared with $67.4(6) million in 2008.
(6) Excluding the amortisation of intangible assets (other than software) and exceptional items
Earnings per share
Diluted earnings per share for the year to 31 December 2009 were 40.1 cents, up 35.6% from 29.6 cents in 2008.
Dividend
The Board has recommended a final dividend of 6.5 cents per share (approximately 4.3 pence per share), which will make a dividend for the full year of 11.0 cents per share, up from 7.5 cents per share in 2008, an increase of 46.7%. The proposed final dividend will be paid on 27 May 2010 to shareholders on the register on 16 April 2010, subject to approval by shareholders at the Annual General Meeting.
Operating cash flow and investment
The Group achieved an overall improvement in working capital for the period, reducing its working capital days by 6 days. Improvement was made in the MENA region and in Europe, where we generated significant cash flow from operations. This increase is a reflection of our continued focus on improving collections, increased factoring of receivables and a leaner supply chain. This improvement was offset, however, by our US Generics business, where receivables increased due to a change in customer mix and where a planned increase in inventories is helping us to maintain high service levels and improve profitability.
Group receivable days increased by 7 days compared to 31 December 2008, from 109 days to 116 days as at 31 December 2009. Inventory days increased by 3 days to 177 days reflecting an increase in inventories in the US related to our efforts to improve service levels. Increases in receivable and inventory days were offset by an improvement in payable days of 15 days.
Working capital improvements coupled with improved profitability led to a significant increase in operating cash flow to reach $119.0 million, compared to $75.0 million in 2008.
Balance sheet
Capital expenditures declined to $37.0 million from $56.7 million in 2008. During the period, expenditure was focused on the completion of our new lyophilisation plant in Portugal, the expansion of our manufacturing capacity in Algeria and Egypt and overall maintenance capex across all of our facilities. We will increase capital expenditure in 2010 as we expand our manufacturing capacity in the MENA region to support demand for our global products.
As a result of working capital improvements and reduced capital expenditure, net debt decreased from $170.9 million as at 31 December 2008 to $116.9 million as at 31 December 2009 keeping the Group in a very strong financing position.
Outlook
Hikma should continue to benefit from the overall pharmaceutical market growth in the MENA region, which we expect to remain higher than the global pharmaceutical market. Our share of the MENA market should also continue to increase as we further penetrate into existing markets, expand into new markets and grow our portfolio of own-brand and in-licensed products. There also remains considerable scope for us to grow our global Injectables business following the significant investments we have made in portfolio development, sales and marketing and manufacturing capacity. Our US Generics business is on a strong footing and we are confident that we can maintain the positive momentum we have created in this business. Overall for the Group we expect to deliver Group sales growth in the low-teens in 2010 and expect gross margin to be broadly in line with the improved gross margin we achieved in 2009.
Responsibility statement
The responsibility statement below has been prepared in connection with the company's full annual report for the year ended 31 December 2009. Certain parts thereof are not included within this announcement.
We confirm to the best of our knowledge:
· The financial statements, prepared in accordance with the International Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; and
· The Business review, which is incorporated into the Directors' report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face.
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By order of the Board
Said Darwazah Mazen Darwazah
16 March 2010
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Cautionary statement
This preliminary announcement has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed. It should not be relied on by any other party or for any other purpose.
Forward looking statements
Certain statements in this announcement are forward-looking statements - using words such as "intends", "believes", anticipates" and "expects". Where included, these have been made by the Directors in good faith based on the information available to them up to the time of their approval of this announcement. By their nature, forward-looking statements are based on assumptions and involve inherent risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements, and should be treated with caution. These risks, uncertainties or assumptions could adversely affect the outcome and financial effects of the plans and events described in this announcement. Forward-looking statements contained in this announcement regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. You should not place undue reliance on forward-looking statements, which speak as only of the date of the approval of this announcement.
Except as required by law, the Company is under no obligation to update or keep current the forward-looking statements contained in this announcement or to correct any inaccuracies which may become apparent in such forward-looking statements.
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Hikma Pharmaceuticals PLC
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|||||
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Consolidated statement of comprehensive income for the year ended 31 December 2009 |
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Notes |
|
2009 |
|
2008 |
|
|||||
|
Continuing operations |
|
|
|
USD 000's |
|
USD 000's |
|
|||||
|
Revenue |
|
3 |
|
636,884 |
|
580,656 |
|
|||||
|
Cost of sales |
|
3 |
|
(332,459) |
|
(324,174) |
|
|||||
|
Gross profit |
|
3 |
|
304,425 |
|
256,482 |
|
|||||
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|
|
|
|
|
|
|
|
|||||
|
Sales and marketing costs |
|
|
|
(98,083) |
|
(90,560) |
|
|||||
|
General and administrative expenses |
|
|
|
(66,677) |
|
(56,853) |
|
|||||
|
Research and development costs |
|
|
|
(16,843) |
|
(22,172) |
|
|||||
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Other operating expenses (net) |
|
|
|
(15,529) |
|
(6,215) |
|
|||||
|
Total operating expenses |
|
|
|
(197,132) |
|
(175,800) |
|
|||||
|
Adjusted operating profit |
|
|
|
114,742 |
|
94,326 |
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|||||
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Exceptional items : |
|
|
|
|
|
|
|
|||||
|
- Revision to estimates for chargebacks, returns and rebates |
|
4 |
|
- |
|
(4,800) |
|
|||||
|
- Acquisition integration costs |
|
4 |
|
- |
|
(1,629) |
|
|||||
|
Intangible amortisation* |
|
4 |
|
(7,449) |
|
(7,215) |
|
|||||
|
|
|
|
|
|
|
|
|
|||||
|
Operating profit |
|
|
|
107,293 |
|
80,682 |
|
|||||
|
Finance income |
|
|
|
514 |
|
817 |
|
|||||
|
Finance expense |
|
|
|
(12,827) |
|
(17,545) |
|
|||||
|
Other (expense) / income |
|
|
|
(193) |
|
80 |
|
|||||
|
Profit before tax |
|
|
|
94,787 |
|
64,034 |
|
|||||
|
Tax |
|
5 |
|
(15,469) |
|
(6,915) |
|
|||||
|
Profit for the year |
|
|
|
79,318 |
|
57,119 |
|
|||||
|
Attributable to: |
|
|
|
|
|
|
|
|||||
|
Non controlling interest |
|
|
|
1,635 |
|
(6) |
|
|||||
|
Equity holders of the parent |
|
|
|
77,683 |
|
57,125 |
|
|||||
|
|
|
|
|
79,318 |
|
57,119 |
|
|||||
|
Earnings per share (cents) |
|
|
|
|
|
|
|
|||||
|
Basic |
|
7 |
|
40.9 |
|
30.4 |
|
|||||
|
Diluted |
|
7 |
|
40.1 |
|
29.6 |
|
|||||
|
Cumulative effect of change in fair value |
|
|
|
2 |
|
(216) |
|
|||||
|
Cumulative effect of change in fair value |
|
|
|
(202) |
|
(78) |
|
|||||
|
Exchange difference on translation |
|
|
|
1,364 |
|
(15,454) |
|
|||||
|
Total comprehensive income for the year |
|
|
|
80,482 |
|
41,371 |
|
|||||
|
Attributable to: |
|
|
|
|
|
|
|
|||||
|
Non - controlling interest |
|
|
|
1,586 |
|
(6) |
|
|||||
|
Equity holders of the parent |
|
|
|
78,896 |
|
41,377 |
|
|||||
|
|
|
|
|
80,482 |
|
41,371 |
|
|||||
|
* Intangible amortisation comprises the amortisation on intangible assets other than software. |
|
|||||||||||
|
|
|
|||||||||||
|
|
|
|
|
|
|
|
|
|||||
|
Hikma Pharmaceuticals PLC
|
|
|
|
|
|
|
|
|||||
|
Consolidated balance sheet |
|
|
|
|
|
|
|
|||||
|
At 31 December 2009 |
|
|
|
|
|
|
|
|||||
|
|
|
Notes |
|
2009 |
|
2008 |
||||||
|
|
|
|
|
USD 000's |
|
USD 000's |
||||||
|
Non-current assets |
|
|
|
|
|
|
||||||
|
Intangible assets |
|
|
|
255,696 |
|
258,228 |
||||||
|
Property, plant and equipment |
|
|
|
283,371 |
|
271,650 |
||||||
|
Interest in joint venture |
|
|
|
5,451 |
|
5,453 |
||||||
|
Deferred tax assets |
|
|
|
18,793 |
|
13,305 |
||||||
|
Available for sale investments |
|
|
|
542 |
|
540 |
||||||
|
Financial and other non-current assets |
|
|
|
2,270 |
|
2,077 |
||||||
|
|
|
|
|
566,123 |
|
551,253 |
||||||
|
Current assets |
|
|
|
|
|
|
||||||
|
Inventories |
|
8 |
|
160,509 |
|
154,756 |
||||||
|
Trade and other receivables |
|
9 |
|
226,841 |
|
195,843 |
||||||
|
Collateralised cash |
|
|
|
2,334 |
|
819 |
||||||
|
Cash and cash equivalents |
|
|
|
65,663 |
|
62,727 |
||||||
|
Other current assets |
|
|
|
1,251 |
|
1,061 |
||||||
|
|
|
|
|
456,598 |
|
415,206 |
||||||
|
Total assets |
|
|
|
1,022,721 |
|
966,459 |
||||||
|
Current liabilities |
|
|
|
|
|
|
||||||
|
Bank overdrafts and loans |
|
|
|
60,317 |
|
117,300 |
||||||
|
Obligations under finance leases |
|
|
|
1,826 |
|
1,221 |
||||||
|
Trade and other payables |
|
10 |
|
107,618 |
|
82,003 |
||||||
|
Income tax provision |
|
|
|
14,857 |
|
12,016 |
||||||
|
Other provisions |
|
|
|
6,153 |
|
5,392 |
||||||
|
Other current liabilities |
|
|
|
13,671 |
|
10,502 |
||||||
|
|
|
|
|
204,442 |
|
228,434 |
||||||
|
Net current assets |
|
|
|
252,156 |
|
186,772 |
||||||
|
Non-current liabilities |
|
|
|
|
|
|
||||||
|
Long-term financial debts |
|
|
|
116,119 |
|
110,414 |
||||||
|
Deferred income |
|
|
|
494 |
|
695 |
||||||
|
Obligations under finance leases |
|
|
|
6,675 |
|
5,496 |
||||||
|
Deferred tax liabilities |
|
|
|
11,734 |
|
12,425 |
||||||
|
|
|
|
|
135,022 |
|
129,030 |
||||||
|
Total liabilities |
|
|
|
339,464 |
|
357,464 |
||||||
|
Net assets |
|
|
|
683,257 |
|
608,995 |
||||||
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|||||
Hikma Pharmaceuticals PLC
Consolidated balance sheet - continued
At 31 December 2009
|
|
|
Notes |
|
2009 |
|
2008 |
|
|
|
|
|
USD 000's |
|
USD 000's |
|
Equity |
|
|
|
|
|
|
|
Share capital |
|
11 |
|
34,236 |
|
33,857 |
|
Share premium |
|
|
|
272,785 |
|
269,973 |
|
Own shares |
|
|
|
(2,203) |
|
(1,124) |
|
Other reserves |
|
|
|
371,067 |
|
300,503 |
|
Equity attributable to equity holders of the parent |
|
|
|
675,885 |
|
603,209 |
|
Non - controlling interest |
|
|
|
7,372 |
|
5,786 |
|
Total equity |
|
|
|
683,257 |
|
608,995 |
Hikma Pharmaceuticals PLC
Consolidated statement of changes in equity
for the year ended 31 December 2009
|
|
Merger reserve |
Revaluation reserves |
Translation reserves |
Retained earnings |
Total reserves |
Share capital |
Share premium |
Own shares |
Total equity attributable to equity shareholders of the parent |
Non - controlling interest |
Total equity |
|
|
USD 000's |
USD 000's |
USD 000's |
USD 000's |
USD 000's |
USD 000's |
USD 000's |
USD 000's |
USD 000's |
USD 000's |
USD 000's |
|
Balance at 1 January 2008 |
33,920 |
4,627 |
19,792 |
215,853 |
274,192 |
30,229 |
114,059 |
- |
418,480 |
6,177 |
424,657 |
|
Profit/(loss) for the year |
- |
- |
- |
57,125 |
57,125 |
- |
- |
- |
57,125 |
(6) |
57,119 |
|
Cumulative effect of change in fair value of available for sale investments |
- |
- |
- |
(216) |
(216) |
- |
- |
- |
(216) |
- |
(216) |
|
Cumulative effect of change in fair value of financial derivatives |
- |
- |
- |
(78) |
(78) |
- |
- |
- |
(78) |
- |
(78) |
|
Realisation of revaluation reserve |
- |
(180) |
- |
180 |
- |
- |
- |
- |
- |
- |
- |
|
Currency translation loss |
- |
- |
(15,454) |
- |
(15,454) |
- |
- |
- |
(15,454) |
- |
(15,454) |
|
Total comprehensive income for the year |
- |
(180) |
(15,454) |
57,011 |
41,377 |
- |
- |
- |
41,377 |
(6) |
41,371 |
|
Issue of equity shares |
- |
- |
- |
- |
- |
3,628 |
155,914 |
- |
159,542 |
- |
159,542 |
|
Acquisition of own shares |
- |
- |
- |
- |
- |
- |
- |
(1,124) |
(1,124) |
- |
(1,124) |
|
Cost of equity settled employee share scheme |
- |
- |
- |
3,384 |
3,384 |
- |
- |
- |
3,384 |
- |
3,384 |
|
Deferred tax arising on share-based payments |
- |
- |
- |
(4,299) |
(4,299) |
- |
- |
- |
(4,299) |
- |
(4,299) |
|
Dividends on ordinary shares (note 6) |
- |
- |
- |
(14,151) |
(14,151) |
- |
- |
- |
(14,151) |
- |
(14,151) |
|
Dividends paid to minority shareholders |
- |
- |
- |
- |
- |
- |
- |
- |
- |
(385) |
(385) |
|
Balance at 31 December 2008 and 1 January 2009 |
33,920 |
4,447 |
4,338 |
257,798 |
300,503 |
33,857 |
269,973 |
(1,124) |
603,209 |
5,786 |
608,995 |
|
Profit for the year |
- |
- |
- |
77,683 |
77,683 |
- |
- |
- |
77,683 |
1,635 |
79,318 |
|
Cumulative effect of change in fair value of available for sale investments |
- |
- |
- |
2 |
2 |
- |
- |
- |
2 |
- |
2 |
|
Cumulative effect of change in fair value of financial derivatives |
- |
- |
- |
(202) |
(202) |
- |
- |
- |
(202) |
- |
(202) |
|
Realisation of revaluation reserve |
- |
(181) |
- |
181 |
- |
- |
- |
- |
- |
- |
- |
|
Currency translation gain/(loss) |
- |
- |
1,413 |
- |
1,413 |
- |
- |
- |
1,413 |
(49) |
1,364 |
|
Total comprehensive income for the year |
- |
(181) |
1,413 |
77,664 |
78,896 |
- |
- |
- |
78,896 |
1,586 |
80,482 |
|
Issue of equity shares |
- |
- |
- |
- |
- |
379 |
2,812 |
- |
3,191 |
- |
3,191 |
|
Acquisition of own shares |
- |
- |
- |
- |
- |
- |
- |
(1,079) |
(1,079) |
- |
(1,079) |
|
Cost of equity settled employee share scheme |
- |
- |
- |
4,616 |
4,616 |
- |
- |
- |
4,616 |
- |
4,616 |
|
Current and deferred tax arising on share - based payments |
- |
- |
- |
3,170 |
3,170 |
- |
- |
- |
3,170 |
- |
3,170 |
|
Dividends on ordinary shares (note 6) |
- |
- |
- |
(16,118) |
(16,118) |
- |
- |
- |
(16,118) |
- |
(16,118) |
|
Balance at 31 December 2009 |
33,920 |
4,266 |
5,751 |
327,130 |
371,067 |
34,236 |
272,785 |
(2,203) |
675,885 |
7,372 |
683,257 |
|
Hikma Pharmaceuticals PLC
|
|
|
|
|
|
|
Consolidated cash flow statement |
|
|
|
|
|
|
for the year ended 31 December 2009 |
|
|
|
|
|
|
|
Note |
|
2009 |
|
2008 |
|
|
|
|
USD 000's |
|
USD 000's |
|
Net cash from operating activities |
12 |
|
118,979 |
|
74,969 |
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
|
(35,170) |
|
(56,205) |
|
Proceeds from disposal of property, plant and equipment |
|
|
1,080 |
|
1,003 |
|
Purchase of intangible assets |
|
|
(5,213) |
|
(9,313) |
|
Proceeds from disposal of intangible assets |
|
|
1,316 |
|
1,257 |
|
Change in interest in joint venture |
|
|
2 |
|
(910) |
|
Investment in financial and other non current assets |
|
|
(193) |
|
(787) |
|
Investment in available for sale investments (net) |
|
|
- |
|
252 |
|
Payments of prior year acquisition costs |
|
|
- |
|
(2,234) |
|
Finance income |
|
|
514 |
|
817 |
|
Net cash used in investing activities |
|
|
(37,664) |
|
(66,120) |
|
Financing activities |
|
|
|
|
|
|
(Increase)/decrease in collateralised cash |
|
|
(1,515) |
|
4,809 |
|
Increase in long-term financial debts |
|
|
39,275 |
|
101,685 |
|
Repayment of long-term financial debts |
|
|
(33,570) |
|
(48,933) |
|
Decrease in short-term borrowings |
|
|
(56,983) |
|
(159,237) |
|
Increase/(decrease) in obligations under finance leases |
|
|
1,784 |
|
(436) |
|
Dividends paid |
|
|
(16,118) |
|
(14,151) |
|
Dividends paid to non - controlling shareholders |
|
|
- |
|
(385) |
|
Purchase of own shares |
|
|
(1,079) |
|
(1,124) |
|
Interest paid |
|
|
(13,461) |
|
(17,097) |
|
Proceeds from issue of new shares |
|
|
3,191 |
|
162,026 |
|
Costs of issue of new shares |
|
|
- |
|
(2,484) |
|
Net cash (used in) / from financing activities |
|
|
(78,476) |
|
24,673 |
|
Net increase in cash and cash equivalents |
|
|
2,839 |
|
33,522 |
|
Cash and cash equivalents at beginning of year |
|
|
62,727 |
|
28,905 |
|
Foreign exchange translation movements |
|
|
97 |
|
300 |
|
Cash and cash equivalents at end of year |
|
|
65,663 |
|
62,727 |
Hikma Pharmaceuticals PLC
Notes to the consolidated financial information
1. Basis of preparation
The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2009 or 2008, but is derived from those accounts. Statutory accounts for 2008 have been delivered to the Registrar of Companies and those for 2009 will be delivered following the company's annual general meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention any matters by way of emphasis without qualifying their report and did not contain statements under s237(2) or (3) Companies Act 1985 or under S498 (2) or (3) of the Companies Act 2006.
Hikma Pharmaceuticals PLC's consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board. The financial statements have also been prepared in accordance with IFRSs adopted for use in the European Union and therefore comply with Article 4 of the EU IAS Regulation. The financial statements have been prepared under the historical cost convention, except for the revaluation to market of certain financial assets and liabilities. The preliminary announcement is based on the Company's financial statements.
The Group's previously published financial statements were also prepared in accordance with International Financial Reporting Standards. These International Financial Reporting Standards have been subject to amendment and interpretation by the International Accounting Standards Board and the financial statements presented for the years ended 31 December 2007 and 31 December 2008 have been prepared in accordance with those revised standards. Unless stated otherwise these policies are in accordance with the revised standards that have been applied throughout the year and prior years presented in the financial statements.
The presentational and functional currency of Hikma Pharmaceuticals PLC is the US Dollar as the majority of the Company's business is conducted in US Dollars (USD).
Going concern
Although the current economic conditions may affect short-term demand for our products, as well as place pressure on our customers and suppliers in terms of liquidity issues, we believe that the Group's geographic spread, product diversity and large customer and supplier base substantially mitigate these risks. In addition, the Group operates in the relatively defensive generic pharmaceuticals industry which we expect to be less affected compared to other industries that are subject to greater cyclical changes.
The Group has $378 million of banking facilities of which $193 million were undrawn as at 31 December 2009. These facilities are well diversified across the operating subsidiaries of the Group and are with a number of financial institutions. 44% of the group's short term and undrawn long term facilities are of committed nature. We continue to expect the short term facilities to be renewed upon maturity. In addition the Group maintained cash balances of $67.9 million as at 31 December 2009. The Group's forecasts, taking into account reasonable possible changes in trading performance, facility renewal sensitivities and maturities of long-term debt, show that the Group should be able to operate well within the levels of its facilities and their related covenants.
After making enquiries, the Directors believe that the Group is adequately placed to manage its business and financing risks successfully despite the current uncertain economic outlook. The directors have formed a judgement that there is reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.
Hikma Pharmaceuticals PLC
Notes to the consolidated financial information
2. Adoption of new and revised standards
The following new and revised Standards and Interpretations have been adopted in the current year. Their adoption has not had any significant impact on the amounts reported in these financial statements but may impact the accounting for future transactions and arrangements.
|
IAS 1 (revised 2007) Presentation of Financial statements |
IAS 1 (2007) has introduced a number of changes in format and contents of the financial statements. |
|
IAS 23 (revised 2007) Borrowing Costs |
The principal change to the Standard was to eliminate the option to expense all borrowing costs when incurred. This change has had no impact on these financial statements because it has always been the Group's accounting policy to capitalise borrowing costs incurred on qualifying assets. |
|
Amendments to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements - Puttable Financial Instruments and Obligations Arising on Liquidation |
The revisions to IAS 32 amend the criteria for debt/equity classification by permitting certain puttable financial instruments and instruments (or components of instruments) that impose on an entity an obligation to deliver to another party a pro-rate share of the net assets of the entity only on liquidation, to be classified as equity, subject to specified criteria being met. |
|
Amendments to IAS 39 Financial Instruments: Recognition and Measurement - Eligible Hedged Items |
The amendments provide clarification on two aspects of hedge accounting: identifying inflation as a hedged risk or portion, and hedging with options. |
|
Embedded Derivatives (Amendments to IFRIC 9) Reassessment of Embedded Derivatives and IAS 39 Financial Instruments: Recognition and Measurement |
The amendments clarify the accounting for embedded derivatives in the case of a reclassification of a financial asset out of the 'fair value through profit or loss' (FVTPL) category as permitted by the October 2008 amendments to IAS 39 Financial Instruments: Recognition and Measurement (see above). |
|
IFRS 8 Operating Segments |
The Group has adopted IFRS 8 Operating Segments with effect from 1 January 2009. IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Chief Executive to allocate resources to segments and to assess their performance. In contrast, the predecessor Standard (IAS 14 Segment Reporting) required the Group to identify two sets of segments (business and geographical), using a risks and returns approach, with the Group's system of internal financial reporting to key management personnel serving only as the starting point for the identification of such segments. |
|
Improving Disclosures about Financial Instruments (Amendments to IFRS 7 Financial Instruments: Disclosures) |
The amendments to IFRS 7 expand the disclosures required in respect of fair value measurements and liquidity risk. |
|
Amendment to IFRS 2 Share-based Payment - Vesting Conditions and Cancellations |
The amendments clarify the definition of vesting conditions for the purposes of IFRS 2, introduce the concept of 'non-vesting' conditions and clarify the accounting treatment for cancellations. |
Hikma Pharmaceuticals PLC
Notes to the consolidated financial information
2. Adoption of new and revised standards - continued
|
Amendments to IAS 20 - Accounting for Government Grants and Disclosure of Government Assistance |
IAS 20 has been amended to require that the benefit of a government loan at a below-market rate of interest to be treated as a government grant. This accounting treatment was not permitted prior to this amendment.
|
|
IFRIC 16 - Hedges of a Net Investment in a Foreign Operation |
The Interpretation provides guidance on the detailed requirements for net investment hedging for certain hedge accounting designations. |
|
IFRIC 18 - Transfers of Assets from customers |
The Interpretation addresses the accounting by recipients for transfers of property, plant and equipment from 'customers' and concludes what item of property, plant and equipment transferred meets the definition of an asset from the perspective of the recipient, the recipient should recognise the asset at its fair value on the date of transfer, with the credit recognised in accordance with IAS 18 Revenue. |
At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU):
|
IFRS 1 (amended)/IAS 27 (amended) |
Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate |
|
IFRS 2 (amended) |
Group cash-settled share based payment transactions |
|
IFRS 3 (revised 2008) |
Business Combinations |
|
IAS 24 (amended) |
Related Party Disclosures |
|
IAS 27 (revised 2008) |
Consolidated and Separate Financial Statements |
|
IAS 28 (revised 2008) |
Investments in Associates |
|
IAS 32 (amended) |
Classification of Rights Issues |
|
IFRIC 17 |
Distributions of Non-cash Assets to Owners |
|
IFRS 9 |
Financial Instruments |
|
IFRIC 14 |
Prepayments of a minimum funding requirements |
|
IFRIC 19 |
Extinguishing financial liabilities with equity instruments |
|
Improvements to IFRSs (April 2009) |
|
The directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Group except for treatment of acquisition of subsidiaries and associates when IFRS 3 (revised 2008), IAS 27 (revised 2008) and IAS 28 (revised 2008) come into effect for business combinations for which the acquisition date is on or after 1 January 2010.
Hikma Pharmaceuticals PLC
Notes to the consolidated financial information
3. Segmental reporting
For management purposes, the Group is currently organised into three operating divisions - Generic, Branded and Injectables. These divisions are the basis on which the Group reports its segment information.
The Group discloses underlying operating profit as the measure of segment result as this is the measure used in the decision-making and resource allocation process of the chief operating decision maker, who is the Group's Chief Executive Officer.
The following is an analysis of the Group's revenue and results by reportable segment in 2009:
|
|
Year ended |
|
|
|
|
|
|
|||
|
|
31 December 2009 |
Branded |
Injectables |
Generic |
Others |
Group |
|
|||
|
|
|
USD 000's |
USD 000's |
USD 000's |
USD 000's |
USD 000's |
|
|||
|
|
Revenue |
352,674 |
144,069 |
135,060 |
5,081 |
636,884 |
|
|||
|
|
Cost of sales |
(165,066) |
(81,162) |
(82,524) |
(3,707) |
(332,459) |
|
|||
|
|
Gross profit |
187,608 |
62,907 |
52,536 |
1,374 |
304,425 |
|
|||
|
|
|
|
|
|
|
|
|
|||
|
|
Result |
|
|
|
|
|
|
|||
|
|
Adjusted segment result |
96,029 |
17,859 |
25,360 |
(2,345) |
136,903 |
|
|||
|
|
Intangible amortisation* |
(4,580) |
(2,526) |
(343) |
- |
(7,449) |
|
|||
|
|
|
|
|
|
|
|
|
|||
|
|
Segment result |
91,449 |
15,333 |
25,017 |
(2,345) |
129,454 |
|
|||
|
|
Unallocated corporate expenses |
|
|
|
|
(22,161) |
|
|||
|
|
Operating profit |
|
|
|
|
107,293 |
|
|||
|
|
Finance income |
|
|
|
|
514 |
|
|||
|
|
Finance expense |
|
|
|
|
(12,827) |
|
|||
|
|
Other expense |
|
|
|
|
(193) |
|
|||
|
|
Profit before tax |
|
|
|
|
94,787 |
|
|||
|
|
Tax |
|
|
|
|
(15,469) |
|
|||
|
|
Profit for the year |
|
|
|
|
79,318 |
|
|||
|
|
Attributable to: |
|
|
|
|
|
|
|||
|
|
Non - controlling interest |
|
|
|
|
1,635 |
|
|||
|
|
Equity holders of the parent |
|
|
|
|
77,683 |
|
|||
|
|
|
|
|
|
|
79,318 |
|
|||
|
|
|
|
|
|
|
|
||||
* Intangible amortisation comprises the amortisation on intangible assets other than software.
"Others" mainly comprise Arab Medical Containers LTD and International Pharmaceutical Research Center LTD and chemicals division of Hikma Pharmaceuticals LTD Jordan.
Unallocated corporate expenses are primarily made up of employee costs, office costs, professional fees and donations.
Hikma Pharmaceuticals PLC
Notes to the consolidated financial information
3. Segmental reporting - continued
|
Segment assets and liabilities |
|
|
Branded |
Injectables |
Generic |
Corporate and Others |
Group |
|
|
|
|
USD 000's |
USD 000's |
USD 000's |
USD 000's |
USD 000's |
|
Additions to property, plant and equipment (cost) |
|
|
23,827 |
9,594 |
2,925 |
609 |
36,955 |
|
Additions to intangible assets |
|
|
1,889 |
2,591 |
709 |
24 |
5,213 |
|
Total property, plant and equipment and intangible assets (net book value) |
|
|
341,548 |
157,938 |
30,815 |
8,766 |
539,067 |
|
Depreciation |
|
|
14,715 |
4,730 |
4,567 |
1,187 |
25,199 |
|
Amortisation (including software) |
|
|
5,509 |
2,956 |
434 |
50 |
8,949 |
|
|
|
|
|
|
|
|
|
|
Balance sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
|
|
Segment assets |
|
|
679,112 |
204,220 |
119,093 |
20,296 |
1,022,721 |
|
Total liabilities |
|
|
|
|
|
|
|
|
Segment liabilities |
|
|
203,750 |
91,104 |
30,567 |
14,043 |
339,464 |
Hikma Pharmaceuticals PLC
Notes to the consolidated financial information
3. Segmental reporting - continued
The following is an analysis of the Group's revenue and results by reportable segment in 2008:
|
Year ended 31 December 2008 |
|
|
|
|
|
|
|
|
Branded |
Injectables |
Generic |
Others |
Group |
|
|
|
USD 000's |
USD 000's |
USD 000's |
USD 000's |
USD 000's |
|
|
Revenue |
320,837 |
149,320 |
105,696 |
4,803 |
580,656 |
|
|
Cost of sales |
(148,023) |
(85,942) |
(86,385) |
(3,824) |
(324,174) |
|
|
Gross profit |
172,814 |
63,378 |
19,311 |
979 |
256,482 |
|
|
|
|
|
|
|
|
|
|
Result |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted segment result |
93,591 |
24,688 |
(839) |
(3,738) |
113,702 |
|
|
Exceptional items : |
|
|
|
|
|
|
|
- Revision to estimates for chargebacks, returns and rebates |
- |
- |
(4,800) |
- |
(4,800) |
|
|
- Acquisition integration costs |
(1,629) |
- |
- |
- |
(1,629) |
|
|
Intangible amortisation* |
(4,478) |
(2,587) |
(150) |
- |
(7,215) |
|
|
|
|
|
|
|
|
|
|
Segment result |
87,484 |
22,101 |
(5,789) |
(3,738) |
100,058 |
|
|
Unallocated corporate expenses |
|
|
|
|
(19,376) |
|
|
Operating profit |
|
|
|
|
80,682 |
|
|
Finance income |
|
|
|
|
817 |
|
|
Finance expense |
|
|
|
|
(17,545) |
|
|
Other income |
|
|
|
|
80 |
|
|
Profit before tax |
|
|
|
|
64,034 |
|
|
Tax |
|
|
|
|
(6,915) |
|
|
Profit for the year |
|
|
|
|
57,119 |
|
|
Attributable to: |
|
|
|
|
|
|
|
Non - controlling interest |
|
|
|
|
(6) |
|
|
Equity holders of the parent |
|
|
|
|
57,125 |
|
|
|
|
|
|
|
57,119 |
|
"Others" mainly comprise Arab Medical Containers LTD and 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 and donations.
Hikma Pharmaceuticals PLC
Notes to the consolidated financial information
3. Segmental reporting - continued
|
Segment assets and liabilities |
|
Branded |
Injectables |
Generic |
Corporate and Other |
Group |
|||||
|
|
|
USD 000's |
USD 000's |
USD 000's |
USD 000's |
USD 000's |
|||||
|
Additions to property, plant and equipment (cost) |
|
34,226 |
12,981 |
8,037 |
1,427 |
56,671 |
|||||
|
Additions to intangible assets |
|
3,801 |
4,781 |
463 |
1,601 |
10,646 |
|||||
|
Total property, plant and equipment and intangible assets (net book value) |
|
336,839 |
150,282 |
32,185 |
10,572 |
529,878 |
|||||
|
Depreciation |
|
13,686 |
5,615 |
4,463 |
1,303 |
25,067 |
|||||
|
Amortisation (including software) |
|
4,980 |
2,925 |
150 |
- |
8,055 |
|||||
|
|
|
|
|
|
|
|
|||||
|
Balance sheet |
|
|
|
|
|
|
|||||
|
Total assets |
|
|
|
|
|
|
|||||
|
Segment assets |
|
642,397 |
196,894 |
95,456 |
31,712 |
966,459 |
|||||
|
Total liabilities |
|
|
|
|
|
|
|||||
|
Segment liabilities |
|
196,924 |
82,804 |
28,191 |
49,545 |
357,464 |
|||||
|
|
|
|
|
|
|
|
|
||||
Hikma Pharmaceuticals PLC
Notes to the consolidated financial information
3. Segmental reporting - continued
The following table provides an analysis of the Group's sales by geographical market, irrespective of the origin of the goods/services:
|
|
|
Sales revenue by |
||
|
|
|
geographical market |
||
|
|
|
For the year ended 31 December |
||
|
|
|
2009 |
|
2008 |
|
|
|
USD 000's |
|
USD 000's |
|
|
|
|
|
|
|
Middle East and North Africa |
|
404,689 |
|
365,922 |
|
Europe and Rest of the World |
|
78,981 |
|
82,999 |
|
United States |
|
152,406 |
|
130,606 |
|
United Kingdom |
|
808 |
|
1,129 |
|
|
|
636,884 |
|
580,656 |
The top selling markets are USA, Saudi Arabia and Algeria with total sales of USD 152.4 million (2008: USD 130.6 million), USD 107.2 million (2008: USD 107.5 million) and USD 74.5 million (2008: USD 67.9 million), respectively.
Included in the Group's total sales are sales of approximately USD 92.8 million (2008: USD 87.6 million) which arose from sales to the Group's largest client in Saudi Arabia.
The following is an analysis of the additions and total property, plant and equipment and intangible assets and an analysis of total assets by the geographical area in which the assets are located:
|
|
|
Total non current assets excluding deferred tax asset as at December 31
|
|
Total assets as at December 31
|
||||||
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
||
|
|
USD 000’s
|
|
USD 000’s
|
|
USD 000’s
|
|
USD 000’s
|
|||
|
Middle East and North Africa
|
|
357,945
|
353,997
|
690,170
|
657,901
|
|||||
|
Europe
|
|
157,938
|
150,876
|
205,758
|
198,766
|
|||||
|
United States
|
|
30,944
|
32,377
|
119,093
|
95,456
|
|||||
|
United Kingdom
|
|
503
|
698
|
7,700
|
14,336
|
|||||
|
|
|
547,330
|
|
537,948
|
|
1,022,721
|
|
966,459
|
||
Hikma Pharmaceuticals PLC
Notes to the consolidated financial information
4. Exceptional items and intangible amortisation
Exceptional items are disclosed separately in the statement of comprehensive income to assist in the understanding of the Group's underlying performance.
|
|
|
For the years ended 31 December
|
|||||
|
|
|
2009
|
|
2008
|
|||
|
|
|
USD 000’s
|
|
USD 000’s
|
|||
|
Revision to estimates for chargebacks, returns and rebates
|
|
-
|
|
(4,800)
|
|||
|
Acquisition integration costs
|
|
-
|
|
(1,629)
|
|||
|
Exceptional items
|
|
-
|
|
(6,429)
|
|||
|
Intangible amortisation
|
|
(7,449)
|
|
(7,215)
|
|||
|
Exceptional items and intangible amortisation*
|
|
(7,449)
|
|
(13,644)
|
|||
|
Tax effect
|
|
1,531
|
|
3,408
|
|||
|
Impact on profit for the year
|
|
(5,918)
|
|
(10,236)
|
|||
|
|
|
|
|
|
|
||
Revision to estimates for chargebacks, returns and rebates represents a one-off charge taken against revenue during 2008.
Acquisition integration costs represent expenses incurred in integrating APM and Hikma Pharma SAE (Egypt) into the Group. These are included within sales and marketing and general and administrative expenses.
Hikma Pharmaceuticals PLC
Notes to the consolidated financial information
5. Tax
|
|
|
For the years ended 31 December |
||
|
|
|
|
|
|
|
|
USD 000's |
|
USD 000's |
|
|
Current tax: |
|
|
|
|
|
UK current tax |
|
560 |
|
10,830 |
|
Double tax relief |
|
(560) |
|
(10,830) |
|
Foreign tax |
|
19,988 |
|
9,268 |
|
Prior year adjustments |
|
1,035 |
|
76 |
|
Deferred tax (note 17) |
|
(5,554) |
|
(2,429) |
|
|
|
15,469 |
|
6,915 |
* The 2008 comparatives have been restated in relation to UK current tax and double tax relief. The net impact on the balance sheet and the statement of comprehensive income is Nil.
UK corporation tax is calculated at 28% (2008: 28.5%) of the estimated assessable profit made in the UK for the year.
Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdiction.
The charge for the year can be reconciled to profit before tax per the statement of comprehensive income as follows:
|
|
|
For the years ended 31 December |
||||||
|
|
|
|
|
|
2008* |
|||
|
|
|
USD 000's |
|
USD 000's |
||||
|
|
Profit before tax: |
|
94,787 |
|
64,034 |
|||
|
|
Tax at the UK corporation tax rate of 28% ( 2008: 28.5% ) |
|
26,540 |
|
18,250 |
|||
|
|
Profits taxed at different rates |
|
(15,776) |
|
(15,089) |
|||
|
|
UK tax on dividend income |
|
560 |
|
10,830 |
|||
|
|
Double tax relief offset |
|
(560) |
|
(10,830) |
|||
|
|
Permanent differences |
|
3,643 |
|
2,886 |
|||
|
|
Losses for which no benefit is recognised |
|
27 |
|
792 |
|||
|
|
Prior year adjustments |
|
1,035 |
|
76 |
|||
|
|
Tax expense for the year |
|
15,469 |
|
6,915 |
|||
Hikma Pharmaceuticals PLC
Notes to the consolidated financial information
6. Dividends
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
|
USD 000's |
|
USD 000's |
||
|
Amounts recognised as distributions to equity holders in the year: |
|
|
|
|
|
Final dividend for the year ended 31 December 2008 of 4.0 cents (2007: 4.0 cents) per share |
|
7,575 |
|
7,542 |
|
Interim dividend for the year ended 31 December 2009 of 4.5 cents (2008: 3.5 cents) per share |
|
8,543 |
|
6,609 |
|
|
|
16,118 |
|
14,151 |
The proposed final dividend for the year ended 31 December 2009 is 6.5 cents (2008: 4.0 cents) per share, bringing the total dividends for the year to 11.0 cents (2008: 7.5 cents) per share.
Hikma Pharmaceuticals PLC
Notes to the consolidated financial information
7. Earnings per share
The calculation of the basic and diluted earnings per share is based on the following data:
|
|
|
|
For the years ended 31 December
|
|
|
|
2009
|
|
2008
|
|
USD 000’s
|
|
USD 000’s
|
||
|
Earnings for the purposes of basic and diluted earnings per share being net profit attributable to equity holders of the parent
|
|
77,683
|
|
57,125
|
|
|
|
Number
|
|
Number
|
|
Number of shares
|
|
'000
|
|
'000
|
|
Weighted average number of Ordinary Shares for the purposes of basic earnings per share
|
|
189,757
|
|
187,876
|
|
Effect of dilutive potential Ordinary Shares :
|
|
|
|
|
|
Share options
|
|
3,968
|
|
5,295
|
|
Weighted average number of Ordinary Shares for the purposes of diluted earnings per share
|
|
193,725
|
|
193,171
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
2009
|
|
2008
|
|
|||
|
|
|
|
Earnings per share
|
|
Earnings per share
|
||||
|
|
|
|
Cents
|
|
Cents
|
||||
|
Basic
|
|
40.9
|
|
30.4
|
|||||
|
Diluted
|
|
40.1
|
|
29.6
|
|||||
Hikma Pharmaceuticals PLC
Notes to the consolidated financial information
8. Inventories
|
|
|
As at 31 December |
||
|
|
|
2009 |
|
2008 |
|
USD 000's |
|
USD 000's |
||
|
Finished goods |
|
41,453 |
|
45,585 |
|
Work-in-progress |
|
28,074 |
|
23,609 |
|
Raw and packing materials |
|
79,040 |
|
71,733 |
|
Goods in transit |
|
11,942 |
|
13,829 |
|
|
|
160,509 |
|
154,756 |
Goods in transit include inventory held at third parties whilst in transit between Group companies.
|
|
|
As at 31 December 2008 |
Additions |
Utilisation |
Translation adjustments |
As at 31 December 2009 |
||||||
|
|
|
USD 000's |
USD 000's |
USD 000's |
USD 000's |
USD 000's |
||||||
|
|
|
|
|
|
|
|
||||||
|
Provision for slow moving inventory |
8,553 |
12,818 |
(7,359) |
(20) |
13,992 |
|||||||
The total expense in the income statement for the write-off of inventory including provision for such write offs was USD 12,501,000 (2008: USD 8,589,000).
Hikma Pharmaceuticals PLC
Notes to the consolidated financial information
9. Trade and other receivables
|
|
|
As at 31 December
|
||
|
|
|
2009
|
|
2008
|
|
USD 000’s
|
|
USD 000’s
|
||
|
Trade receivables
|
203,250
|
|
173,958
|
|
|
Prepayments
|
16,063
|
|
14,345
|
|
|
Value added tax recoverable
|
5,569
|
|
5,306
|
|
|
Interest receivable
|
49
|
|
108
|
|
|
Employee advances
|
1,910
|
|
2,126
|
|
|
|
226,841
|
|
195,843
|
|
10. Trade and other payables
|
|
|
As at 31 December
|
||
|
|
|
2009
|
|
2008
|
|
USD 000’s
|
|
USD 000’s
|
||
|
Trade payables
|
|
57,307
|
|
42,632
|
|
Accrued expenses
|
|
35,602
|
|
29,823
|
|
Employees' provident fund *
|
|
4,049
|
|
2,753
|
|
VAT and sales tax payables
|
|
3,033
|
|
1,408
|
|
Dividends payable **
|
|
2,348
|
|
2,495
|
|
Social security withholdings
|
|
856
|
|
745
|
|
Income tax withholdings
|
|
1,456
|
|
1,037
|
|
Other payables
|
|
2,967
|
|
1,110
|
|
|
|
107,618
|
|
82,003
|
* The employees' provident fund liability mainly represents the outstanding contributions due to the Hikma Pharmaceuticals Limited - Jordan retirement benefit plan, on which the fund receives 5% interest.
** Dividends payable includes USD 2,165,000 (2008: USD 2,303,000) due to the previous shareholders of APM.
Hikma Pharmaceuticals PLC
Notes to the consolidated financial information
11. Share capital
|
Authorised:
|
|
|
2009
|
|
2008
|
|
|
USD 000’s
|
|
USD 000’s
|
||
|
500,000,000 Ordinary Shares of 10p each
|
|
|
88,700
|
|
88,700
|
|
Issued and fully paid – included in shareholders’ equity:
|
|
|
|
|
|
|
|
|
||||
|
|
|
2009
|
|
2008
|
||||||||
|
|
|
Number
'000 |
|
USD 000’s
|
|
Number '000
|
|
|
USD 000’s
|
|||
|
At 1 January
|
|
189,238
|
|
33,857
|
|
170,734
|
|
30,229
|
||||
|
Issued during the year
|
|
2,390
|
|
379
|
|
18,504
|
|
3,628
|
||||
|
At 31 December
|
|
191,628
|
|
34,236
|
|
189,238
|
|
33,857
|
||||
On 17 January 2008, a total of 17,000,000 new ordinary shares of 10 pence each in the Group were placed at a price of 480 pence per share, raising gross proceeds of approximately GBP 81.6 million (USD 160.3 million). As part of the Placing 5.23 million shares were placed with Darhold Limited at the Placing Price and 333,000 shares were placed with the Darwazah family and other connected individuals at the Placing Price. The total number of shares issued represents 9.96% of Hikma's issued ordinary share capital prior to the placing.
In 2008 the Group used the proceeds from the placing to reduce borrowings incurred in connection with its JOD 116.0 million (USD 163.8 million) acquisition of Arab Pharmaceutical Manufacturing Company thereby providing the Group with increased flexibility to finance future growth.
The costs of the placing of USD Nil in 2009 (2008: USD 2,484,000) were offset against share premium.
Hikma Pharmaceuticals PLC
Notes to the consolidated financial information
12. Net cash from operating activities
|
|
|
2009 |
|
2008 |
|
USD 000's |
|
USD 000's |
||
|
Profit before tax |
|
94,787 |
|
64,034 |
|
Adjustments for: |
|
|
|
|
|
Depreciation, amortisation and impairment of: |
|
|
|
|
|
Property, plant and equipment |
|
25,199 |
|
25,067 |
|
Intangible assets |
|
8,949 |
|
8,055 |
|
Losses/(gains) on disposal of property, plant and equipment |
|
236 |
|
(6) |
|
Gains on disposal of intangible assets |
|
(903) |
|
(832) |
|
Movement on provisions |
|
761 |
|
917 |
|
Movement on deferred income |
|
(201) |
|
416 |
|
Cost of equity settled employee share scheme |
|
4,616 |
|
3,384 |
|
Finance income |
|
(514) |
|
(817) |
|
Interest and bank charges |
|
12,827 |
|
17,545 |
|
Cash flow before working capital |
|
145,757 |
|
117,763 |
|
Change in trade and other receivables |
|
(29,949) |
|
(10,903) |
|
Change in other current assets |
|
(190) |
|
1,564 |
|
Change in inventories |
|
(8,278) |
|
(19,327) |
|
Change in trade and other payables |
|
24,262 |
|
(693) |
|
Change in other current liabilities |
|
3,164 |
|
(5,751) |
|
Cash generated by operations |
|
134,766 |
|
82,653 |
|
Income tax paid |
|
(15,787) |
|
(7,684) |
|
Net cash generated from operating activities |
|
118,979 |
|
74,969 |
13. Related party balances
Transactions between the Company and its subsidiaries have been eliminated on consolidation and are not disclosed in this note. Transactions between the Group and its associate and other related parties are disclosed below.
Trading transactions:
During the year, Group companies entered into the following transactions with related parties:
Darhold Limited: is a related party of the Group because it is considered one of the major shareholders of Hikma Pharmaceuticals PLC with ownership percentage of 29.8% at the end of 2009 (2008: 30.2%). Further details on the relationship between Mr. Samih Darwazah,Mr. Said Darwazah, Mr. Mazen Darwazah and Mr. Ali Al-Husry, and Darhold Limited are given in the Directors' Report.
Other than dividends (as paid to all shareholders), there were no transactions between the Group and Darhold Limited in the year.
Capital Bank - Jordan: is a related party of the Group because during the year one board member of the Bank is also a board member at Hikma Pharmaceuticals PLC. Total cash balances at Capital Bank - Jordan were USD 3,294,000 (2008: USD 217,000). Loans and overdrafts granted by Capital Bank to the Group amounted to USD 77,000 (2008: USD 207,000) with interest rates ranging between 8.75% and 3MLIBOR + 3. Total interest expense incurred against Group facilities was USD 28,000 (2008: USD 86,000).
Hikma Pharmaceuticals PLC
Notes to the consolidated financial information
13. Related party balances - continued
Jordan International Insurance Company: is a related party of the Group because one board member of the company is also a board member at Hikma Pharmaceuticals PLC. Total insurance premiums paid by the Group to Jordan International Insurance Company during the year were USD 1,686,000 (2008: USD 1,351,000). The Group's insurance expense for Jordan International Insurance Company contracts in the year 2009 was USD 2,006,000 (2008: USD 1,490,000). The amounts due to Jordan International Insurance Company at the year end were USD 129,000 (2008: USD 93,000).
Mena Innovative Technology: is a related party because the Group holds a minority stake in this company (see note 18) and because the majority shareholder is the wife of Mr. Nabil Rizk - a chairman of West-ward Pharmaceuticals.Total purchases during the year were USD Nil (2008: USD 1,000). Purchases were made at market price discounted to reflect the quantity of goods purchased. At 31 December 2009, the Group has no outstanding balance with Mena Innovation Technology (2008: USD Nil).
Tunisian Companies: Amounts due from the two Tunisian companies the Group has invested in net of provisions are USD 491,000 (2008: USD 474,000) and USD 1,052,000 (2008: USD 793,000) due from Societe Hikma Medicef Limited-Tunisia and Societe D'Industries Pharmaceutiques Ibn Al Baytar S.A. - Tunisia, respectively. The provision for doubtful debts related to balances above was USD 327,000 (2008: USD 303,000).
Mr. Yousef Abd Ali: Mr. Yousef Abd Ali is a related party of the Group because he holds a non-controlling interest in Hikma Lebanon of 33%, the amount owed to Mr. Yousef by the Group as at 31 December 2009 was USD 279,000 (2008: 161,000).
Labatec Pharma: is a related party of the Group because it is owned by Mr. Samih Darwazah. During 2009 the Group total sales to Labatec Pharma amounted to USD 42,000 (2008: 30,000) and the Group total purchases from Labatec amounted to USD 393,000. At 31 December 2009 the amount owed to Labatec Pharma by the Group was USD 149,000 (2008: Nil).
King and Spalding: is a related party of the Group because the partner of the firm is a board member and a company secretary of West-Ward. King and Spalding is an outside legal counsel firm that handles general legal matters for West-ward. During 2009 fees of USD 55,000 (2008: 217,000) were paid for legal services provided.
14. Foreign exchange currencies
The currencies that have a significant impact on the group accounts and the exchange rates used are as follows:
|
|
Period end rates |
|
Average rates |
||||
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
|
|
|
|
|
|
|
|
|
USD/EUR |
0.6977 |
|
0.7094 |
|
0.7170 |
|
0.6797 |
|
USD/Sudanese Pound |
2.2398 |
|
2.1840 |
|
2.3173 |
|
2.0924 |
|
USD/Algerian Dinar |
72.7309 |
|
71.1999 |
|
72.6817 |
|
64.4330 |
|
USD/Saudi Riyal |
3.7495 |
|
3.7495 |
|
3.7495 |
|
3.7495 |
|
USD/British Pound |
0.6278 |
|
0.6907 |
|
0.6386 |
|
0.5390 |
|
USD/Jordanian Dinar |
0.7090 |
|
0.7090 |
|
0.7090 |
|
0.7090 |
|
USD/Egyptian Pound |
5.5051 |
|
5.5375 |
|
5.5776 |
|
5.4557 |
Hikma Pharmaceuticals PLC
Notes to the consolidated financial information
15. Contingent liabilities
The Group was contingently liable for letters of guarantee and letters of credit totalling USD 62.4 million (2008: USD 23.6 million).
The integrated nature of the Group's worldwide operations, involving significant investment in research and strategic manufacture at a limited number of locations, with consequential cross-border supply routes into numerous end-markets, gives rise to complexity and delay in negotiations with revenue authorities as to the profits on which individual Group companies are liable to tax. Disagreements with, and between, revenue authorities as to intra-Group transactions, in particular the price at which goods and services should be transferred between Group companies in different tax jurisdictions, can produce conflicting claims from revenue authorities as to the profits to be taxed in individual territories. Resolution of such issues is ongoing.
In common with many other companies in the pharmaceutical industry the Group is involved in various legal proceedings considered typical to its business, including litigation relating to employment, product liability and other commercial disputes.
In particular, West-ward Pharmaceutical Corp. is a co-defendant, with four other generic pharmaceutical manufacturers, in litigation brought by Mutual Pharmaceutical Company, Inc. regarding the continued sale by West-ward and the others of generic oral colchicine in the United States, following the approval by the FDA of Mutual's 'Colcrys TM' colchicine product (the "Claim"). Pursuant to the Claim, Mutual alleges unfair competition and false advertising by the Defendants in respect of their sale of oral colchicine, and seeks damages for loss of sales. The Claim was filed in the United States District Court for the Central District of California and subsequently, on petition by the Defendants, transferred to the United States District Court for the District of New Jersey. At the same time as the transfer of the Claim to the District of New Jersey, the Court denied a preliminary injunction that Mutual had sought to prevent the Defendants from continuing their alleged unfair competition and false advertising pending the final outcome of the Claim, finding that Mutual had not demonstrated a substantial likelihood of success on the merits. Discovery is ongoing, and on 12 March 2010, the Court made a scheduling order for the purpose of setting a final schedule to govern further proceedings in the case.
This matter remains subject to substantial uncertainties. As this litigation is at an early stage, it is also not practicable to make a reasonable estimate of the possible financial effect, if any, that could arise. Management has assessed and considered all the relevant facts of the litigation and having done so does not consider that a provision is required to be made in respect of the Claim.
Additional information
Publication of Annual Report and Accounts
This preliminary statement is not being posted to shareholders. The Report and Accounts will be posted to shareholders in due course and will be delivered to the Registrar of Companies following the Annual General Meeting of the Company. Once published, copies of the Report and Accounts will be able to be downloaded from the Company's website http://www.hikma.com/investorrelations/reports/
Annual General Meeting
The Annual General Meeting of Hikma Pharmaceuticals PLC will be held at Regus, 2nd Floor, Berkeley Square House, Berkeley Square, London W1J 6BD, United Kingdom on Thursday 13th May 2010 at 10.30 a.m.
Principal Risks and Uncertainties
The Group's business faces risks and uncertainties. The section below sets out the principal risks and uncertainties that the Group considers could have a significant effect on its financial condition, results of operations or future performance. The list is not set out in order of priority and other risks, currently unknown or not considered material, could have a similar effect.
Operational risks
|
Risk |
Potential impact |
Mitigation |
|
Compliance with cGMP |
|
|
|
> Non-compliance with manufacturing standards (often referred to as 'Current Good Manufacturing Practices' or cGMP) |
> Delays in supply or an inability to market or develop the Group's products
> Delayed or denied approvals for the introduction of new products
> Product complaints or recalls
> Bans on product sales or importation
> Disruptions to operations
> Litigation
|
> Commitment to maintain the highest levels of quality across all manufacturing facilities
> Strong global compliance function that oversees compliance across the Group
> Remuneration and reward structure that helps retain experienced personnel
> Continuous staff training |
|
Regulation |
|
|
|
> Unanticipated legislative and other regulatory actions and developments concerning various aspects of the Group's operations and products |
> Restrictions on the sale of one or more of our products
> Restrictions on our ability to sell our products at a profit
> Unexpected additional costs required to produce, market or sell our products
> Increased compliance costs
|
> Local operations in most of our key markets
> Strong oversight of local regulatory requirements to help anticipate potential changes to the regulatory environments in which we operate
> Representation and/or affiliation with local industry bodies
|
|
Commercialisation of new products |
|
|
|
> Delays in the receipt of marketing approvals, the authorisation of price and re-imbursement
> Lack of approval and acceptance of new products by physicians, patients and other key decision-makers
> Inability to confirm safety, efficacy, convenience and/or cost-effectiveness of our products as compared to competitive products
> Inability to participate in tender sales |
> Slowdown in revenue growth from new products
> Inability to deliver a positive return on investments in R&D, manufacturing and sales and marketing
|
> Experienced regulatory teams able to accelerate submission processes across all of our markets
> Highly qualified sales and marketing teams across all markets
> A diversified product pipeline with over 60 new compounds pending approval, covering a broad range of therapeutic areas
> A systematic commitment to quality that helps to secure approval and acceptance of new products and mitigate potential safety issues |
|
Product development |
|
|
|
> Failure to secure new products or compounds for development, either through internal research and development efforts, in-licensing, or acquisition |
> Inability to grow sales and increase profitability for the Group > Lower return on investment in research and development
|
> Experienced and successful in-house research and development team
> Strong business development team
> Track record of building in-licensed brands
|
|
Partnerships |
|
|
|
> Inability to renew or extend in-licensing or other partnership agreements with a third-party |
> Loss of products from our portfolio
> Revenue interruptions
> Failure to recoup sales and marketing and business development costs
|
> Long-term relationships with existing in-licensing partners
> Experienced legal team capable of 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 procure active ingredients from approved sources
> Inability to procure active ingredients on commercially viable terms
> Inability to procure the quantities of active ingredients needed to meet market requirements
> Inability to supply finished product to our customers in a timely fashion
|
> Inability to develop and/or commercialise new products
> Inability to market existing products as planned
> Lost revenue streams on short notice
> Reduced service levels and damage to customer relationships
|
> Alternate approved suppliers of active ingredients
> Long-term relationships with reliable raw material suppliers
> Corporate auditing team continuously monitors regulatory compliance of API suppliers
> Focus on improving service levels and optimising our supply chain |
|
Economic and political and unforeseen events
|
|
|
|
> The failure of control, a change in the economic conditions or political environment or sustained civil unrest in any particular market or country
> Unforeseen events such as fire or flooding could cause disruptions to manufacturing or supply |
> Disruptions to manufacturing and marketing plans
> Lost revenue streams
> Inability to market or supply products |
> Geographic diversification, with 12 manufacturing facilities and sales in more than 40 countries
> Product diversification, with 382 products and 795 dosage strengths and forms |
|
Litigation
|
|
|
|
> Commercial, product liability and other claims brought against the Group |
> Financial impact on Group results from damages awards
> Reputational damage |
> In-house legal counsel with relevant jurisdictional experience |
Financial risks
|
Risk |
Impact |
Mitigation |
|
Foreign exchange risk
|
|
|
|
> Exposure to foreign exchange movements, primarily in the European, Algerian, Sudanese and Egyptian currencies |
> Fluctuations in the Group's net asset values and profits upon translation into US dollars |
> Entering into currency derivative contracts where possible
> Foreign currency borrowing
> Matching foreign currency revenues to costs |
|
Interest rate risk
|
|
|
|
> Volatility in interest rates |
> Fluctuating impact on profits before taxation |
> Optimisation of fixed and variable rate debt as a proportion of our total debt
> Use of interest rate swap agreements
|
|
Credit Risk
|
|
|
|
> Inability to recover trade receivables
> Concentration of significant trade balances with key customers in the MENA region and the US
|
> Reduced working capital funds
> Risk of bad debt or default |
> Clear credit terms for settlement of sales invoices
> Group Credit policy limiting credit exposures
> Use of various financial instruments such as letters of credit, factoring and credit insurance arrangements
|
|
Liquidity Risk |
|
|
|
> Insufficient free cash flow and borrowings headroom |
> Reduced liquidity and working capital funds
> Inability to meet short-term working capital needs and, therefore, to execute our long term strategic plans |
> Continual evaluation of headroom and borrowing
> Committed debt facilities
> Diversity of institution, subsidiary and geography of borrowings
|
|
Tax |
|
|
|
> Changes to tax laws and regulations in any of the markets in which we operate |
> Negative impact on the Group's effective tax rate
> Costly compliance requirements |
> Close observation of any intended or proposed changes to tax rules, both in the UK and in other key countries where the Group operates |
This information is provided by RNS
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