Summary P&L $ million H1 2010 H1 2009 Change Revenue 357.7 321.5 +11.3% Gross profit 178.5 151.2 +18.1% Operating profit 74.3 57.2 +29.9% Adjusted operating profit 1 73.2 60.9 +20.2% Profit attributable to shareholders 54.7 43.2 +26.6% Adjusted profit attributable to shareholders 1 52.8 46.4 +13.8% Diluted earnings per share (cents) 27.9 22.3 +25.1% Adjusted diluted earnings per share (cents) 1 26.9 23.9 +12.6% Dividend per share (cents) 5.5 4.5 +22.2% Net cash flow from operating activities 63.0 36.2 +74.0%
H1 2010 highlights
• Group revenue up 11.3% and adjusted operating profit up 20.2%, delivering continuous growth through diversification
• Gross margin improved to 49.9% compared to 47.0% in H1 2009
• Adjusted operating margin increased to 20.5% compared to 18.9% in H1 2009 while investing for future growth
• Continued new product delivery across all countries and markets – launched 70 products and received 33 product approvals – and new in-licensing partners, including South Korea’s Celltrion for biosimilars
• Excellent working capital management, with net cash flow from operating activities up 74.0% to $63.0 million
• Successfully completed acquisitions in Tunisia and Algeria, strengthening our presence and capabilities in the MENA region
• Strong balance sheet with relatively stable net debt of $123.6 million compared to $116.9 million as of 31 December 2009
• Received FDA approval for the manufacture of oncology products at our injectable plant in Germany
Said Darwazah, Chief Executive Officer of Hikma, said: “We delivered another strong set of results during the first half of 2010. Our Generic and Injectables businesses have performed very well, with exceptional sales and profitability in Generics and a strong performance in US Injectables. Branded sales were stable and we expect stronger sales in the second half of the year in this business.
The excellent first half performance of the Group overall reflects the strength and diversity of our business and we remain confident that we will achieve our target of low teens revenue growth for the full year with improved gross margin compared to 2009.”
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 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.
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, and Bassam Kanaan, CFO, is available at www.hikma.com and www.cantos.com.
Interim management report
Group performance Revenue for the Group increased by 11.3% to $357.7 million, compared to $321.5 million in the first half of 2009. During the period, we had an exceptionally strong performance in our Generics business, while at the same time we delivered improved sales in our Injectables business and stable Branded sales.
Group revenues by business segment H1 2010 H1 2009
Branded 54.2% 59.2% Injectables 20.8% 21.1% Generics 24.4% 19.2%
Group revenues by region
H1 2010 H1 2009 MENA 61.0% 68.0% US 28.0% 20.9% Europe and rest of world 11.0% 11.1%
The Group’s gross profit increased by 18.1% to $178.5 million, compared to $151.2 million in the first half of 2009. Group gross margin for the first half of 2010 was 49.9%, compared to 47.0% in the first half of 2009. This resulted primarily from the exceptional improvement in gross profit in our Generics business as well as from higher sales and profitability in our Injectables business.
Adjusted Group operating expenses grew by 16.7% to $105.4 million. This excludes the amortisation of intangible assets (excluding software) of $3.7 million and exceptional items, which include a non- recurring gain of $7.2 million and transaction costs of $2.3 million related to the Algerian and Tunisian acquisitions 2 . The paragraphs below address the Group’s main operating expenses in turn.
Sales and marketing expenses remained stable as a percentage of sales at 14.7%, reaching $52.7 million for the first half of the year, compared to $47.3 million in the first half of 2009. This was achieved despite the integration of our Tunisian acquisition, continued investment in our sales force in the MENA region, and enhanced marketing activities in our Branded business. These investments were offset by the significant increase in sales in our Generics business and its relatively lower sales and marketing expenses as a percentage of sales.
General and administrative expenses as a percentage of sales remained stable at 9.8%, increasing by 11.2% to $35.2 million, compared to $31.7 million in the first half of 2009. During the period, we continued to focus on strengthening our corporate functions across the Group.
Investment in R&D grew by 27.9% to $10.2 million, with total investment in R&D now representing 2.8% of Group revenues, compared to 2.5% in the first half of 2009, reflecting increased investment across all three business segments.
Other net operating expenses decreased on a reported basis by $0.9 million to $6.1 million. On an adjusted basis, other net operating expenses increased by $4.0 million to $11.0 million. This increase was due primarily to higher provisions for slow moving items, but also to transactional foreign exchange losses, which resulted mainly from the depreciation of the Algerian Dinar and the Sudanese Pound.
Operating profit for the Group increased by 29.9% to $74.3 million, compared to $57.2 million in the first half of 2009. Group operating margin rose to 20.8%, up from 17.8% in the first half of 2009. On an adjusted basis, Group operating profit increased by 20.2% to $73.2 million and Group operating margins rose to 20.5%.
Branded
H1 2010 highlights:
• Branded revenue excluding acquisitions remained stable in H1 2010, reflecting disruptions in Algeria
• Successful completion of acquisitions in Tunisia and Algeria, strengthening our presence and capabilities in the MENA region
• On track to meet revenue guidance of low double digit growth for the full year, with stronger sales expected in the second half
Branded revenue increased by 1.9% in the first half of 2010 to $193.8 million. Ibn Al Baytar, the Tunisian business acquired at the end of March, contributed $3.7 million in sales during the period.
As previously reported, we experienced disruptions to our operations in Algeria in the first half, particularly at the start of the year, due to government imposed restrictions on imports. As a result of these restrictions, we were unable to import certain key products and faced delays in the issuance of import licenses. We experienced price declines on locally produced products and new requirements to sell through confirmed letters of credit also impacted sales.
Most of these issues have now been addressed. We have increased the number of products manufactured locally. We continue to transfer the manufacture of products to Algeria and we will be able to re-launch locally produced versions of some restricted products by year end. We have also made excellent progress in diversifying and strengthening our customer base and product portfolio. Finally, we have had great success promoting our leading branded generic and in-licensed products.
During the period we continued to emphasise ‘quality sales’ across all of our markets, focusing on new product promotion, developing our market position in leading products and therapeutic areas, and improving the credit quality of our customer base. These efforts are delivering results, with strong growth in many of our leading branded generic and in-licensed products.
We expect to see strong growth in the second half in most of our markets. In Egypt, we expect to benefit from the significant increase in the number of sales representatives and new product launches, while in Jordan, growth will be driven by the continued restructuring of our distribution channels and focus on quality customers. Strong demand for our leading branded generic and in- licensed products and an increase in tender sales will also contribute to stronger sales across the Branded business.
In the first half, we successfully completed two acquisitions, strengthening our presence and capabilities in the MENA region.In March, we took a controlling equity interest in the Tunisian pharmaceutical company Société D’Industries Pharmaceutiques Ibn Al Baytar, enabling us to We are confident that, as a result of these efforts, we are in a much stronger position to accelerate growth in this market.
accelerate our penetration of the fast growing Tunisian market. In April, the Group agreed to acquire the remaining 50% of the issued share capital of Al Dar Al Arabia that we did not already own. The Al Dar Al Arabia plant is expected to be operational by the end of 2011. It will double Hikma’s manufacturing capacity in Algeria and will provide significant scope for further expansion, both in Algeria and across the region.
Revenue from in-licensed products grew by 8.8% in the first half to $82.6 million, representing 42.6% of Branded sales in the first half of 2010. Key in-licensed products like Actos® and Blopress® continued to perform extremely well. During the period, we continued our efforts to develop our portfolio of in-licensed products through partnerships. In April 2010 we announced a strategic investment in biosimilars through a partnership with the South Korean company Celltrion. Under this agreement Hikma will have the exclusive rights to distribute and market nine biosimilar products, which are currently under development, throughout the MENA region under its own brand. This agreement and others signed during the period demonstrate our position as the partner of choice in the MENA region and represent excellent sources of growth for the medium-term.
During the first half of 2010, the Branded business launched a total of 50 products across all markets, including seven new compounds and eight new dosage forms and strengths. The Branded business also received 16 regulatory approvals across the region, including one for a new product.
Gross profit in the Branded business was relatively stable at $102.2 million, compared to $100.9 million in the first half of 2009. Branded gross margin reached 52.7%, compared to 53.0% in the first half of 2009.
The combination of stable Branded sales against an increase in provisions for slow moving items and transactional foreign exchange losses, totalling $3.4 million, combined with continued investment in our sales force in the MENA region, which included an overall increase of more than 100 sales representatives, has had a short term impact on the Branded operating profit and margin. As a consequence, adjusted operating profit in the Branded business decreased by 10.5% to $49.5 million, compared to $55.2 million in the first half of 2009. Adjusted operating margin was 25.5%, compared to 29.0% in the first half of 2009.
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 low double digit revenue growth for the full year with full year operating margins slightly lower than 2009, excluding exceptional items.
Injectables
H1 2010 highlights:
• Injectables revenue up 10.0% to $74.5 million on the back of strong sales in the US and increasing demand for contract manufacturing
• Operating margin increased to 14.2% from 13.2% reflecting improving economies of scale
Injectables revenue by region H1 2010 H1 2009 MENA 40.0% 47.6% US 17.4% 8.1% Europe and ROW 42.6% 44.3%
Revenue in our global Injectables business increased by 10.0% to $74.5 million, compared to $67.7 million in the first half of 2009. US injectables sales more than doubled to reach $13.0 million, compared to $5.5 million in the first half of 2009. Growth was driven by good demand for existing products, the successful launch of new products and an increasing demand for contract manufacturing.
European Injectables sales reached $31.7 million in the first half, up 5.7% from $30.0 million in the first half of 2009, despite the negative impact of regulatory changes, primarily in the German market. Growth was driven by our existing product portfolio and by increased demand for contract manufacturing.
In the MENA region, Injectables sales declined by 7.5% to $29.8 million, compared to $32.2 million in the first half of 2009. This decline is mainly attributed to the timing of orders in both the private and tender markets. As in 2009, we expect strong growth in the second half as we start benefiting from new tender contracts and order deliveries in newer markets such as Iraq.
During the first half, our injectable facility in Germany, which manufactures lyophilized and liquid injectable products for both oncology and non-oncological uses, was inspected and approved by the US FDA. This represents an important step in the process of registering our oncology products in both the US and Europe and reinforces our excellent track record for quality.
During the first half of 2010, the Injectables business launched a total of 20 products across all markets, including nine new compounds and 20 new dosage forms and strengths. The Injectables business also received a total of 16 regulatory approvals across all regions and markets, including eight in MENA, four in Europe and four in the US.
Injectables gross profit increased by 17.3% to $34.3 million, compared to $29.2 million in the first half of 2009, with gross margin increasing to 46.1%, compared to 43.2% in the first half of 2009. The increase in margin reflects improving economies of scale as we drive higher sales in the US and Europe, a more efficient management of overheads and an improving sales mix.
Injectables operating profit increased by 18.0% to $10.6 million, compared to $8.9 million in the first half of 2009. Injectables operating margin improved to 14.2%, up from 13.2% in the first half of 2009.
We anticipate a stronger performance in Injectables in the second half, when we expect to benefit from a pick up in MENA sales alongside continued growth in the US and Europe.
Generics
H1 2010 highlights:
• Generics revenue up 41.1% to $87.2 million
• Robust demand across the core product portfolio delivers strong sales and profitability
• Exceptional sales in certain products enhance segment results
Our Generics business delivered exceptional results in the first half, with revenue growth of 41.1% to $87.2 million, compared to $61.8 million in the first half of 2009. This performance reflects strong demand for our top products as well as a substantial increase in sales resulting from our ability to take advantage of attractive market opportunities in certain products as they arise.
We continue to leverage our global manufacturing capabilities and now produce 11 products in 55 dosage forms and strengths in the MENA region for sale in the US market. These products represented 17.2% of Generics sales during the period. We saw strong demand for some of our anti- infective products, which we were able to meet following the investment we have made in our FDA- approved manufacturing facilities in the MENA region.
During the first half of 2010, the Generics business received one ANDA approval.
Generics gross profit doubled to $41.8 million, compared to $20.9 million in the first half of 2009 enabling gross margin to reach 47.9% compared to 33.8% in the first half of 2009. This reflects the significant increase in sales against relatively small increases in costs. Generics operating profit increased by 185.7% to $26.1 million, compared to $9.1 million in the first half of 2009. Operating margin increased to 30.0%, up from 14.8%. This significant improvement results from the exceptional performance of certain products as well as good profitability from the core product portfolio. For the second half of the year, and going forward, we do not expect this exceptional performance to continue.
Based on the performance that we have achieved in the Generics business in the first half of 2010 and the outlook for the second half of the year, we now expect Generics revenue growth of at least 20% for the full year.
Other businesses Other businesses, which comprise primarily Arab Medical Containers, a manufacturer of plastic specialised packaging, and International Pharmaceuticals Research Centre, which conducts bio- equivalency studies, contributed revenues of $2.2 million, compared to aggregate revenue of $1.9 million in the first half of 2009.
These other businesses delivered an operating loss of $1.9 million in the first half of 2010, remaining at the same level as in the first half of 2009.
Research & Development
The Group’s product portfolio continues to grow. During the first half of the year, we launched 16 new compounds, expanding the Group portfolio to 395 compounds in 811 dosage forms and strengths. We manufacture and/or sell 33 of these compounds under-license from the originator.
Across all businesses and markets, a total of 70 products were launched during the first half. In addition, the Group received 40 approvals.
Total marketed products Products launched in H1 2010
Compounds Dosage forms and strengths New compounds New dosage forms and strengths Total launches across all countries 5
Branded 252 480 7 8 50
Injectables 94 223 9 20 20
Generics 49 108 0 0 0
Group 395 811 16 28 70
Products approved in H1 2010
Products pending approval as at 30 June 2010
New compounds New dosage forms and strengths Total approvals across all countries 5 New compounds New dosage forms and strengths Total pending approvals across all countries 5
Branded 1 2 16 47 96 2686
Injectables 7 9 16 33 50 2816
Generics 1 1 1 23 30 30
Group 9 12 33 103 176 579
To ensure the continuous development of our product pipeline, we submitted 104 regulatory filings in the first half of the year across all regions and markets. As of 30 June 2010, we had a total of 579 pending approvals across all regions and markets.
At 30 June 2010, we had a total of 64 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 decreased slightly to $6.4 million, compared to $6.7 million in the first half of 2009 due to lower net debt as explained in the net cash flow from operating activities and investment section below.
Profit before tax Profit before tax for the Group increased by 33.7% to $67.5 million, compared to $50.5 million in the first half of 2009. Adjusted profit before tax increased by 22.5% to $66.4 million.
Tax The Group incurred a tax expense of $12.9 million in the first half, compared to $6.5 million in the first half of 2009. The effective tax rate was 19.1%, compared to 12.9% in the first half of 2009. The increase in the tax rate is mainly attributable to the significant increase in profitability in the US.
Mo Noonan Senior Manager Financial Communications
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