Hikma Pharmaceuticals impresses despite profits drop

Hikma Pharmaceuticals nudged its dividend higher as profits were held back last year due to a combination of lower profits from the generics business, greater investment in growth and currency effects.

On revenue up 39% to $1.95bn over the calendar year, the FTSE 100 drug maker generated statutory operating profits of $302m, which were down 21% on the previous year, though excluding exceptional items like acquisition costs, goodwill amortisation and inventory adjustments, core operating profits were up 2% to $419m.

Profits before tax fell 34% to $210m but core profits were boosted by strong growth in injectables and branded drugs, which was offset by a decline at the generics business as it integrated last February's $1.7bn acquisition of specialty generics company West-Ward Columbus and more than doubled its investment in research and development across the group.

Core basic earnings per share shrank 18% to 118.5 cents, or 5% in constant currency, as Hikma had issued 40m extra shares in February last year as part of the West-Ward Columbus acquisition.

With operating cash flow of $293m, down from $366m the prior year, the board proposed a final dividend of 22 cents per share, which would lift the full year dividend by a penny on the previous year to 33 cents per share.

Chairman and chief executive Said Darwazah said the addition of West-Ward Columbus was transforming the generics business and the group as a whole.

"This is our largest acquisition to date and the integration process has been both challenging and exciting. We expect the Generics business to achieve significant growth in revenue and profitability in the coming years as we focus on pipeline execution and portfolio optimisation."

However, it is the global injectables business that has delivered the strongest growth in revenue and operating profit,

He said in the Middle East and North Africa region, reported results were impacted by the devaluation of the Egyptian pound in November 2016.

"However, our strategic focus on higher value products, combined with tight cost control, drove significant growth in operating profit in constant currency and a meaningful margin expansion.

"Our business today is stronger than ever. We are well positioned across our markets, with a large and differentiated portfolio and pipeline and we are confident in the future prospects of the group."

For 2017, he expects revenue to be around $2.2bn in constant currency, with the injectables business delivering further growth and strong demand across the global portfolio and new product launches more than offsetting the impact of increased competition.

Injectables core operating margins are guided to be in the "high 30s", taking into account a step-up in R&D investment, with generics profitability expected to "significantly improve" thanks to new product launches, including generic Advair in the second half, an enhanced mix of sales and greater operating efficiencies. Branded operating margins were seen as being broadly in line with 2016.