REG - Hikma Pharmaceutical - Final Results <Origin Href="QuoteRef">HIK.L</Origin> - Part 2
16/03/2016 07:12
- Part 2: For the preceding part double click ID:nRSP2201Sa
of funding options are available to the Group to finance
acquisitions
· Compliance · The pharmaceutical industry and certain MENA markets are considered to be higher risk in relation to sales practices. Improper conduct by employees could seriously damage the reputation and licence to do business · Board level - Compliance, Responsibility and Ethics committee· Code of Conduct approved by the Board, translated into 7 languages and signed by all employees·
ABC compliance programme monitored by the CREC· 2,200 employees received ABC compliance training in 2014· Sales and marketing and other ABC compliance policies
and procedures are created, updated and rolled out· Active participation in international anti-corruption intiatives (e.g. PACI, UN Global Compact)
· Financial · The Group is exposed to a variety of financial risks similar to most major international manufacturers such as liquidity, exchange rates, tax uncertainty and debtor default · Extensive financial control procedures have been implemented and are assessed annually as part of the internal audit programme· A network of banking partners is
maintained for lending and deposits· Management monitors debtor payments and takes action where necessary· Where it is economic and possible to do so, the Group
hedges its exchange rate and interest rate exposure· Management obtains external advice to help manage tax exposures and has upgraded internal tax control systems
· Legal, intellectual property and regulatory · The Group is exposed to a variety of legal, IP and regulatory risks similar to most relevant major international industries such as litigation, investigations, sanctions and potential business disruptions · Expert internal departments that enhance policies, processes, embed compliance culture, raise awareness and train staff· First class expert external advice is
procured to provide independent services and ensure highest standards· Board of Directors and management provide leadership and take action as necessary
· Information technology · If information and data are not adequately secured and protected (data security, access controls), this could result in:o Increased internal/ external security threatso Compliance and reputational damageso Regulatory and legal litigation in case of failure to manage personal datao Reduced information accountability due to limited sensitive data access controls · Utilise appropriate levels of industry-standard information security solutions for critical systems· Continue to stay abreast of cyber-risk activity and where
necessary, implement changes to combat this· Improved alignment between IT and business strategy
· Organizational Growth · The fast growing pace of the organization carries the inherent risk to maintaining adequate talent acquisition strategies, organizational structure and or/management processes that serve the changing needs of the organization. In turn, this may affect other risks within the company · Keeping our organization structures and accountabilities under review, and maintaining the flexibility to make changes smoothly as requirements change· Employ
HR programs that attract, manage and develop talent within the organization· Continuously upgrade management processes that meet so that they become and remain the
standard of global company of our size
· Reputational · Reputational risk inescapably arises as a by-product of other risk and from taking intricate business decisions. However, we view our reputation as one of our most valuable asset, as risks facing our reputation may affect our ability to conduct core business operations. · Monitor the internal and external sources that might signal reputational issues· Sustain corporate responsibility and ethics through transparent reporting and
compliance with global best practices (e.g. GHG emissions, UN Global Compact)· Respond quickly and conscientiously to any issue that threatens our reputation, and
maintain access to world class expertise that can help us in this respect.
1Constant currency numbers in 2015 represent statutory 2015 numbers re-stated using average exchange rates in 2015
2Before the amortisation of intangible assets other than software and exceptional items included in operating profit, as
set out in note 4 to the financial information; previously referred to as adjusted operating profit
3Earnings before interest, tax, depreciation and amortisation. EBITDA is stated before impairment charges and share of
results from associated companies
4EBITDA before exceptional items
5Before the exceptional items and other adjustments as set out in note 4 to the financial information.
6In 2014, Hikma paid a total combined dividend of 32.0 cents per share, comprised of a full year dividend of 22.0 cents per
share and a special dividend of 10.0 cents per share
7Before the amortisation of intangible assets other than software and exceptional items included in operating profit, as
set out in note 4 to the financial information; previously referred to as adjusted operating profit.
8Before the amortisation of intangible assets other than software and exceptional items included in operating profit, as
set out in note 4 to the financial information; previously referred to as adjusted operating margin
9IMS Healthcare, MAT sales value December 2015, adjusted to reflect recent M&A activity
10Products are defined as pharmaceutical compounds sold by the Group. New compounds are defined as pharmaceutical
compounds being introduced for the first time during the period and existing compounds being introduced into a new segment
11Totals include 71 dermatological and cosmetic compounds in 282 dosage forms and strengths that are only sold in Morocco.
12Totals include all compounds and formulations that are either launched or approved or pending approval across all
markets, as relevant
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2015
2015 2015 2015 2014 2014 2014
Core results Exceptional items and other adjustments Statutory results Core results Exceptional items and other adjustments Statutory results
(note 4) (note 4)
Note $m $m $m $m $m $m
Continuing operations
Revenue 3 1,440 - 1,440 1,489 - 1,489
Cost of sales 3 (622) - (622) (638) - (638)
Gross profit 3 818 - 818 851 - 851
Sales and marketing expenses (156) (16) (172) (157) (14) (171)
General and administrative expenses (180) (20) (200) (174) (11) (185)
Research and development expenses (36) - (36) (55) - (55)
Other operating expenses (net) (37) 8 (29) (38) - (38)
Total operating expenses (409) (28) (437) (424) (25) (449)
Operating profit 3 409 (28) 381 427 (25) 402
Loss/impairment of associates (2) (7) (9) (6) - (6)
Finance income 3 - 3 4 - 4
Finance expense (55) (2) (57) (38) - (38)
Profit before tax 355 (37) 318 387 (25) 362
Tax 5 (67) 3 (64) (84) 4 (80)
Profit for the year 288 (34) 254 303 (21) 282
Attributable to:
Non-controlling interests 2 - 2 4 - 4
Equity holders of the parent 286 (34) 252 299 (21) 278
288 (34) 254 303 (21) 282
Earnings per share (cents)
Basic 7 143.7 126.6 151.0 140.4
Diluted 7 142.3 125.4 149.5 139.0
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2015
2015 2014
$m $m
Profit for the year 254 282
Items that may be reclassified subsequently to the income statement:
Cumulative effect of change in fair value of financial derivatives - 1
Exchange difference on translation of foreign operations (67) (53)
Total comprehensive income for the year 187 230
Attributable to:
Non-controlling interests (2) 3
Equity holders of the parent 189 227
187 230
CONSOLIDATED BALANCE SHEET
AT 31 DECEMBER 2015
2015 2014
Note $m $m
Non-current assets
Intangible assets 607 602
Property, plant and equipment 507 514
Investment in associates and joint ventures 7 16
Deferred tax assets 70 67
Financial and other non-current assets 46 39
1,237 1,238
Current assets
Inventories 8 251 273
Income tax asset 3 10
Trade and other receivables 9 488 439
Collateralised and restricted cash 40 8
Cash and cash equivalents 553 280
Other current assets 25 3
1,360 1,013
Total assets 2,597 2,251
Current liabilities
Bank overdrafts and loans 115 393
Obligations under finance leases 1 1
Trade and other payables 10 276 248
Income tax provision 75 65
Other provisions 28 25
Other current liabilities 11 97 109
592 841
Net current assets 768 172
Non-current liabilities
Long-term financial debts 12 590 145
Obligations under finance leases 22 23
Deferred tax liabilities 21 25
Other non-current liabilities 13 20 1
653 194
Total liabilities 1,245 1,035
Net assets 1,352 1,216
Equity
Share capital 14 35 35
Share premium 282 281
Own shares (1) (1)
Other reserves 1,021 882
Equity attributable to equity holders of the parent 1,337 1,197
Non-controlling interests 15 19
Total equity 1,352 1,216
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2015
Merger and 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 interests Total equity
$m $m $m $m $m $m $m $m $m $m
Balance at 1 January 2014 38 (46) 712 704 35 281 (3) 1,017 17 1,034
Profit for the year - - 278 278 - - - 278 4 282
Cumulative effect of change in fair value of financial derivatives - - 1 1 - - - 1 - 1
Currency translation loss - (52) - (52) - - - (52) (1) (53)
Total comprehensive income for the year - (52) 279 227 - - - 227 3 230
Cost of equity-settled employee share scheme - - 8 8 - - - 8 - 8
Exercise of equity-settled employee share scheme - - (2) (2) - - 2 - - -
Dividends on ordinary shares (Note 6) - - (55) (55) - - - (55) (1) (56)
Balance at 31 December 2014 and 1 January 2015 38 (98) 942 882 35 281 (1) 1,197 19 1,216
Profit for the year - - 252 252 - - - 252 2 254
Currency translation Loss - (63) - (63) - - - (63) (4) (67)
Total comprehensive income for the year - (63) 252 189 - - - 189 (2) 187
Issue of equity shares - - - - - 1 - 1 - 1
Cost of equity-settled employee share scheme - - 15 15 - - - 15 - 15
Deferred tax arising on share-based payments - - (1) (1) - - - (1) - (1)
Dividends on ordinary shares (Note 6) - - (64) (64) - - - (64) (2) (66)
Balance at 31 December 2015 38 (161) 1,144 1,021 35 282 (1) 1,337 15 1,352
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2015
2015 2014
Note $m $m
Net cash from operating activities 15 366 425
Investing activities
Purchases of property, plant and equipment (82) (91)
Proceeds from disposal of property, plant and equipment 4 31 1
Purchase of intangible assets (55) (27)
Proceeds from disposal of intangible assets - 1
Investment in financial and other non-current assets - (5)
Investment in available for sale investments (1) -
Investments designated at fair value (20) -
Acquisition of business undertakings net of cash acquired - (225)
Finance income 3 4
Acquisition related amounts held in escrow account 18 (38) -
Net cash used in investing activities (162) (342)
Financing activities
Increase/(decrease) in collateralised and restricted cash 6 (1)
Increase in long-term financial debts 529 5
Repayment of long-term financial debts (91) (121)
(Decrease)/increase in short-term borrowings (270) 241
Dividends paid (64) (55)
Dividends paid to non-controlling shareholders of subsidiaries (2) (1)
Interest paid (49) (38)
Proceeds from issue of new shares 1 -
Proceeds from co-development and earnout payment agreement 17 -
Net cash generated by financing activities 77 30
Net increase in cash and cash equivalents 281 113
Cash and cash equivalents at beginning of year 280 168
Foreign exchange translation movements (8) (1)
Cash and cash equivalents at end of year 553 280
1. Accounting policies
Basis of preparation
The financial information set out above does not constitute the Company's statutory accounts for the years ended 31
December 2015 or 2014, but is derived from those accounts. Statutory accounts for 2014 have been delivered to the Registrar
of Companies and those for 2015 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 to any matters by way of emphasis
without qualifying their report and did not contain statements 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 2015 and 31 December 2014 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 ($).
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, however, may impact the accounting for
future transactions and arrangements.
Amendments to IAS 36 Recoverable Amount Disclosures for Non-Financial Assets
Amendments to IAS 39 Novation of Derivatives and Continuation of Hedge Accounting
IFRIC 21 Levies
Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities
IFRS 11 (Amendments) Accounting for Acquisitions of Interests in Joint Operations
Annual improvements to IFRSs: 2011 - 2013
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 9 Financial Instruments
IAS 16 and IAS 38 (amendments) Clarification of Acceptable Methods of Depreciation and Amortisation
IAS 16 and IAS 41 (amendments) Agriculture: Bearer Plants
IFRS 15 Revenue from Contracts with Customers
IAS 19 (amendments) Defined Benefit Plans: Employees Contributions
IAS 27 (amendments) Equity Method in Separate Financial Statements
IFRS 10 and IAS 28 (amendments) Sale or Contribution of Assets between an Investor and it Associate or Joint venture
Annual improvements to IFRSs: 2010 - 2012
Annual improvements to IFRSs: 2012 - 2014 Cycle
IAS 1 (Amendments) Disclosure Initiative
IFRS 10, IFRS 12 and IAS 28 (Amendments) Investment Entities: Applying the Consolidation Exemption
IFRS 16 Leases
IAS 12 (Amendments) Recognition of deferred tax assets for unrealised losses
The Directors do not expect that the adoption of the Standards listed above will have a material impact on the financial
statements of the Group in future periods, except that IFRS 9 will impact both the measurement and disclosures of financial
instruments and IFRS 15 may have an impact on revenue recognition and related disclosures. Beyond the information above, it
is not practicable to provide a reasonable estimate of the effects of IFRS 9, IFRS 15 and IFRS 16 until a detailed review
has been completed.
2. Going concern
The Directors of Hikma ("Directors") believe that the Group is well diversified due to its geographic spread, product
diversity and large customer and supplier base. The Group operates in the relatively defensive generic pharmaceuticals
industry, which the Directors expect to be insulated from wider economic conditions.
The Group's overall net debt position was $135 million at 31 December 2015 compared to $274 million in December 2014.
Operating cash flow in 2015 was $366 million, compared to $425 million in 2014. The Group has $1,374 million of undrawn
short term and long term banking facilities, compared to $839 million in 2014, in addition to $205 million of unutilised
import and export financing limits compared to $180 million in 2014. These facilities are well diversified across the
subsidiaries of the Group and are with a number of financial institutions. The Group's forecasts, taking into account
reasonable possible changes in trading performance, facility renewal sensitivities, maturities of long-term debt, and the
acquisition of Roxane, show that the Group should be able to operate well within the levels of its facilities and their
related covenants. The acquisition of Roxane has been financed through a combination of cash reserves, and utilization of
the Group's existing debt facilities.
During the year the Group agreed to purchase Roxane from Boehringer Ingelheim, the transaction was closed on 29 February
2016. In addition to the payment of $575 million in cash, the transaction was also financed by the issue of 40 million
shares, increasing the issued capital of the Company by 20%. Adjusting for the Roxane acquisition, our net debt at 31
December 2015 would have been $710 million.
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 and political outlook. The Directors have a reasonable
expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The
Directors therefore continue to adopt the going concern basis in preparing the financial statements.
3. Segmental reporting
For management purposes, the Group is currently organised into three principal operating divisions - Branded, Injectables
and Generics. These divisions are the basis on which the Group reports its segmental information.
The Group discloses underlying operating profit as the measure of segmental result, as this is the principle measure used
in decision-making and resource allocation by the chief operating decision maker, who is the Group's Chief Executive
Officer.
Information regarding the Group's operating segments is reported below.
The following is an analysis of the Group's revenue and results by reportable segment in 2015:
Branded Injectables Generics Others Group
Year ended 31 December 2015 $m $m $m $m $m
Revenue 570 710 151 9 1,440
Cost of sales (293) (261) (62) (6) (622)
Gross profit 277 449 89 3 818
Core segment result 118 312 46 (5) 471
Exceptional items:
- Integration costs - - (2) - (2)
- Severance costs (5) (1) - - (6)
- Proceeds from legal claims - 2 - - 2
- Gain from sale of assets, net - 6 - - 6
Intangible amortisation other than software (8) (8) - - (16)
Segment result 105 311 44 (5) 455
Core unallocated corporate expenses (62)
Exceptional items:
- Acquisition related expenses (12)
Unallocated corporate expenses (74)
Core operating profit 409
Operating profit 381
Loss/impairment of associates (9)
Finance income 3
Finance expense (57)
Profit before tax 318
Tax (64)
Profit for the year 254
Attributable to:
Non-controlling interest 2
Equity holders of the parent 252
254
Segment result is defined as operating profit for each segment.
"Others" mainly comprises Arab Medical Containers Ltd, International Pharmaceutical Research Center Ltd and the chemicals
division of Hikma Pharmaceuticals Ltd (Jordan).
Unallocated corporate expenses are primarily made up of employee costs, professional fees, travel expenses and donations.
Branded Injectables Generics Corporate and others Group
Segment assets and liabilities 2015 $m $m $m $m $m
Additions to property, plant and equipment (cost) 24 39 15 7 85
Remeasurement of property, plant and equipment (note 17) - (1) - - (1)
Additions to intangible assets 5 41 8 2 56
Remeasurement of Intangible assets (note 17) - (8) - - (8)
Total property, plant and equipment and intangible assets (net book value) 478 532 81 23 1,114
Depreciation and impairment 22 19 8 2 51
Amortisation and impairment (including software) 9 11 1 1 22
Investment in associates and joint ventures - - - 7 7
Balance sheet
Total assets 1,108 829 165 495 2,597
Total liabilities 453 397 309 86 1,245
The following is an analysis of the Group's revenue and results by reportable segment in 2014:
Branded Injectables Generics Others Group
Year ended 31 December 2014 $m $m $m $m $m
Revenue 551 713 216 9 1,489
Cost of sales (284) (282) (66) (6) (638)
Gross profit 267 431 150 3 851
Core segment result 111 265 113 (5) 484
Exceptional items:
Intangible amortisation other than software (9) (5) - - (14)
Segment result 102 260 113 (5) 470
Core unallocated corporate expenses (57)
Exceptional items:
- Acquisition related expenses (11)
Unallocated corporate expenses (68)
Core operating profit 427
Operating profit 402
Loss from associates (6)
Finance income 4
Finance expense (38)
Profit before tax 362
Tax (80)
Profit for the year 282
Attributable to:
Non-controlling interest 4
Equity holders of the parent 278
282
Segment result is defined as operating profit for each segment.
"Others" mainly comprise Arab Medical Containers Ltd, 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, donations and
travel expenses.
Branded Injectables Generics Corporate and others Group
Segment assets and liabilities 2014 $m $m $m $m $m
Additions to property, plant and equipment (cost) 48 31 8 2 89
Acquisition of business' property, plant and equipment (net book value) - 53 - - 53
Additions to intangible assets 4 16 4 1 25
Intangible assets arising on acquisition - 174 - - 174
Total property, plant and equipment and intangible assets (net book value) 511 528 70 7 1,116
Depreciation and impairment 22 18 7 2 49
Amortisation and impairment (including software) 10 13 - - 23
Investment in associates and joint ventures - - - 16 16
Balance sheet
Total assets 1,123 770 175 183 2,251
Total liabilities 481 405 92 57 1,035
The following table provides an analysis of the Group's sales by geographical market, irrespective of the origin of the
goods/services:
2015 2014
$m $m
Middle East and North Africa 656 633
United States 697 763
Europe and Rest of the World 82 89
United Kingdom 5 4
1,440 1,489
The top selling markets were as below:
2015 2014
$m $m
United States 697 763
Saudi Arabia 162 146
Algeria 113 86
972 995
Included in revenues arising from the Generics and Injectables segments are revenues of approximately $173 million (2014:
$221 million) which arose from the Group's largest customer which is located in the United States.
The following is an analysis of the total non-current assets excluding deferred tax and financial instruments and an
analysis of total assets by the geographical area in which the assets are located:
Total non-current assets excluding deferred tax and financial instruments as at 31 December Total assets as at 31 December
2015 2014 2015 2014
$m $m $m $m
Middle East and North Africa 577 606 1,174 1,202
Europe 135 141 146 195
United States 390 368 811 648
United Kingdom 63 55 466 206
1,165 1,170 2,597 2,251
4. Exceptional items and other adjustments
Exceptional items are disclosed separately in the consolidated income statement to assist in the understanding of the
Group's underlying performance.
2015 2014
Exceptional items $m $m
Acquisition and integration related costs (14) (11)
Severance costs (6) -
Proceeds from legal claims 2 -
Gain from sale of assets, net 6 -
Exceptional items included in operating profit (12) (11)
Impairment of investment in associates (7) -
Exceptional items included in profit (19) (11)
Other adjustments
Intangible amortisation other than software (16) (14)
Co-development and earnout payment agreement finance cost (note 13) (2) -
Exceptional items and other adjustments (37) (25)
Tax effect 3 4
Impact on profit for the year (34) (21)
Exceptional items:
· Acquisition and integration related expenses are costs incurred in relation to the acquisition of Roxane laboratories
Inc. and Boehringer Ingelheim (together "Roxane "), which was closed on 29 February 2016. Acquisition related expenses are
included in the unallocated corporate expenses, while integration related expenses are included in segment results.
Acquisition related expenses mainly comprise third party consulting services, legal and professional fees.
· Severance expenses in 2015 related to restructuring of management teams mainly in MENA.
· Proceeds from legal claims refers to cash received in settlement of an indemnification claim in the US.
· Gain from sale of the assets related to the sale of Bedford manufacturing facilities to Xellia Pharmaceuticals for a
cash consideration of $30 million. The gain is net of hibernation costs related to the assets.
· Impairment of investment in associates represents the impairment of the remaining investment balance related to
Unimark Remedies limited. Hikma's share in Unimark Remedies Limited is being divested during 2016.
Other adjustments:
· Co-development and earnout payment agreement finance cost represents the difference resulting on remeasurement of the
fair value of the liability associated with the future earnout payments to be made in relation to the agreement. (note 13)
In previous periods exceptional items related to the following:
Acquisition related expenses were costs incurred from acquiring Bedford Laboratories, these expenses were included in the
unallocated corporate expenses and mainly comprise third party consulting services, legal and professional fees.
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