2008 was both a rewarding and challenging year at Hikma. Looking forward, I am confident in the Company’s prospects for this year and the years to come.
Our businesses in the Middle East and North Africa (”MENA”) region continued to thrive and the successful integration of two important acquisitions significantly strengthened our position as the leading regional pharmaceutical manufacturer. In line with our commitment to become a leading global speciality pharmaceutical company, we also made excellent progress in our Injectables business, where revenues grew by 23.2%. We are making good progress in implementing our oncology strategy. Against these areas of progress, we faced some difficulties in our US Generics business, where the extremely competitive trading environment made it difficult for us to offset the expiration of a large government contract. I am pleased to report that we took prompt management action and successfully restored this business to profitability by the end of the year.
For the year we delivered record revenues of $580.7 million and total revenue growth of 29.4%. The impact of the difficulties in our US Generics business in the first half of 2008 resulted in a lower gross margin for the Group of 44.2%, compared with 49.4% in 2007, and a decline of 12.7% in our operating profit to $80.7 million. However earnings before interest, tax, depreciation and amortisation (EBITDA) declined by only 1.7% to $113.8 million and on an adjusted basis operating profit decreased by 1.0%. Profit attributable to shareholders for the period declined by 8.7% to $57.1 million, but on an adjusted basis increased by 4.5%. Diluted earnings per share declined by 16.4% to 29.6 cents per share. Impressively, our operating cash flow reached $75.0 million, an increase of 40.7%, through a strong focus on working capital management.
Dividend
In order to pursue our growth strategy and mindful of the difficult economic times in which the world finds itself, the Board has recommended that the dividend should be held this year. Therefore the Board is recommending a final dividend of 4.0 cents per share (approximately 2.8 pence per share), which will make a dividend for the full year of 7.5 cents per share, the same as paid in 2007. The proposed final dividend will be paid on 2 June 2009 to shareholders on the register on 1 May 2009, subject to approval by shareholders at the Annual General Meeting.
Balance sheet developments
In January 2008 we raised gross proceeds of £81.6 million (approximately $160 million) through the placing of 17 million ordinary shares to fund the December 2007 acquisition of Arab Pharmaceutical Manufacturing Co. Ltd (”APM”). We ended 2008 with net debt of $170.9 million, compared with $306.8 million at the end of 2007, reflecting not only the equity issue but also higher operating cash flow from improved management of our working capital. We are well invested and as a result our balance sheet is strong, with over $63 million in cash at the year-end and unutilised loan facilities of $121 million across multiple geographies.
Outlook
With 60% of our sales generated in the MENA region, Hikma should continue to benefit from the overall pharmaceutical market growth in this region, which we expect will remain much higher than the global market. Our share of the MENA market should also continue to increase as we further penetrate existing markets, expand into new markets and grow our portfolio of own-brand and in-licensed products. With new products and entry into new markets, we believe that there remains considerable scope for us to grow our global Injectables business, particularly in the MENA region but also in the US and Europe. We expect performance in our US Generics business, which returned to profitability in the fourth quarter of 2008, to continue to improve.
In summary, I am highly confident in the Company’s prospects for this year and the years to come. This confidence is based on the strength of our Branded and Injectables businesses, the recovery in the Generics business that we have already begun to experience, and the excellent management team that we have in place.
Samih Darwazah
Non-Executive Chairman
