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Hikma Pharmaceuticals

Mediocre H2 amid muted FY 19 guidance

Hikma’s H2 18 top-line missed our as well as the street’s expectations marginally. Revenue was up by 4.4% to $1.09bn, driven by the robust performance by the Generic segment (+14%). A decline in the Branded segment (-1%; FX headwinds played a major role), was compensated by a marginal increase in the Injectables (+1%). On the profitability front, the EBITDA margin was up by 5.6ppt to 27%, attributable to a reduction in COGS (47.8% of sales vs 50.3% in H2 17; due to the consolidation of the manufacturing facilities), S&M (6.9% of sales vs 10% in H2 17) and G&A (8.8% of sales vs 10.7% in H2 17), partially offset by an increase in R&D (7.7% of sales vs 5.6% in H2 17). All FY 18 sales numbers are at CER unless specified otherwise. Revenue was up by 8% to $2.07bn, driven by strong across the business segments – Injectables (+6%), Branded (+5%) and Generic (+13%). The core operating margin was up by 2.3ppt to 22.2%, benefiting from the closing down of the Eatontown plant and the integration of the Memphis distribution into the Columbus facility – largely pertaining to the generic business (core operating margin of 13.4% vs 3.6% in FY17), supported by a minor increase in the Branded margin (21.6% vs 21.3% in FY 17), partially offset by a marginal decline in the Injectables margin (40.3% vs 40.6% in FY 17). We expect the manufacturing efficiencies to help realise savings of $20-30m annually from 2019, implying a higher operating margin in the Generics business in the coming years (management targets mid-teens vs 13.4% in 2018). FX had a negative impact of 1ppt on sales. Geographically, the US (62% of total revenue) grew by 8% to $1.3bn, benefiting from the opioid drug-shortage and the strong uptake of new generic drugs, partially offset by a decline in the legacy injectables portfolio and the ongoing pricing pressure in the generic industry. MENA (32% of total revenue) was up by 4.1% to $656m, supported by the strong uptake of the Remsima (biosimilar) in the Injectables segment (+21%), and the solid performance of the Branded segment in Egypt, mitigated by a weak performance in Saudi Arabia and Algeria along with the FX headwinds of 4%. Europe and ROW (6% of total revenue) was up by 15% to $121m, driven by the recent launch of lyophilised products. Our concern was the weak guidance for FY19 — Injectables (revenue $850-900m; core operating margin of 35-38%), Generics (revenue $650-700m; core operating margin in mid-teens), and Branded (revenue growth in mid single-digit), implying group revenue in the range of $2.07-2.17bn.

  • 15 Mar 19
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