REG - Hikma Pharmaceutical - Final Results <Origin Href="QuoteRef">HIK.L</Origin> - Part 2
15/03/2017 07:07
- Part 2: For the preceding part double click ID:nRSO4896Za
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 (CREC)· Code of Conduct approved by the Board, translated into seven languages and signed by all employees· ABC compliance programme monitored by the CREC· Over 5,000
employees have received ABC compliance training· Sales and marketing and other ABC compliance policies and procedures are created, updated and rolled out and are subject to regular audits· Active participation in international anti-corruption
initiatives (e.g. PACI, UN Global Compact)· Strengthening US compliance operations in line with business expansion· Conducting legally privileged internal compliance audits
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. In addition, most of the other risks could have a financial impact on the Group · 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 precautionary measures 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 changes in laws, regulations and their application, litigation, governmental investigations, sanctions, contractual terms and conditions and potential business disruptions · Expert internal departments that enhance policies, processes, embed compliance culture, raise awareness · Train staff and provide terms to mitigate or lower contractual risks where possible· First class expert external advice is procured
to provide independent services and ensure highest standards· Board of Directors and executive management provide leadership and take action
Information technology
· If information and data are not adequately secured and protected (data security, access controls), this could result in:· Increased internal/ external security threats· Compliance and reputational damages· Regulatory and legal litigation · 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· Working with third party consultants on implementing a robust Group-wide information security programme
Human Resources and Organisational growth
· Changes in employment laws, currency fluctuations and inflation pose constant risks. The fast growth of the organisation poses risks to management processes, structures and talent that serve the changing needs of the organisation. In turn, this may affect other risks · Employ HR programmes that attract, manage and develop talent within the organisation· Keeping our organisation structures and accountabilities under review, and maintaining the flexibility to make changes smoothly as requirements change·
Continuously upgrade management processes so that they become and remain at the standards of a global company
Reputational
· Reputational risk inescapably arises as a · 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)·
by-product of other risks and from taking complex business decisions. However, we view our reputation as one of our most valuable assets, as risks facing our reputation may affect our ability to conduct core business operations Strengthening communication and corporate affairs capabilities· Establishing partnerships and programmes to limit misuse of Hikma products
1 Constant currency numbers in 2016 represent reported 2016 numbers re-stated
using average exchange rates in 2015
2 Core results are presented to show the underlying performance of the Group,
excluding amortisation of intangible assets other than software and the
exceptional items set out in note 5
3 Earnings before interest, tax, depreciation and amortisation and other
exceptional items set out in note 5
4 On 3 March 2017, the Egyptian pound had devalued against the US dollar from
its peg of 8.8 EGP:USD prior to 3 November 2016 to 16.2 EGP:USD
(www.oanda.com)
5 Products 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. We are presenting details of the Group's product portfolio and
pipeline to provide additional information in respect of the size and make-up
of the marketed portfolio which is generating revenue and the pipeline
opportunity which will drive future revenue growth
6 Totals include 71 dermatological and cosmetic compounds in 282 dosage forms
and strengths that are only sold in Morocco
7 Totals include all compounds and formulations that are either launched or
approved or pending approval across all markets, as relevant
8 Group working capital days are calculated as Group receivable days plus
Group inventory days, less Group payable days. Group receivable days are
calculated as Group trade receivables x 365, divided by trailing 12 months
Group revenue. Group inventory days are calculated as Group inventory x 365,
divided by trailing 12 months Group cost of sales. Group payable days are
calculated as Group trade payables x 365, divided by trailing 12 months Group
cost of sales. We believe Group working capital days provides a useful
measure of the Group's working capital management and liquidity
9 Group net debt is calculated as Group total debt less Group total cash.
Group total debt excludes co-development agreements and contingent
liabilities. We believe Group net debt is a useful measure of the strength of
the Group's financing position
10 Further detail regarding the West-Ward Columbus acquisition is provided in
note 17
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2016
2016 2016 2016 2015 2015 2015
Core results Exceptional items and other adjustments (note 4) Reported results Core results Exceptional items and other adjustments (note 4) Reported results
Note $m $m $m $m $m $m
Continuing operations
Revenue 3 1,950 - 1,950 1,440 - 1,440
Cost of sales 3 (932) (32) (964) (622) - (622)
Gross profit 3 1,018 (32) 986 818 - 818
Sales and marketing expenses (184) (37) (221) (156) (16) (172)
General and administrative expenses (208) (36) (244) (180) (20) (200)
Research and development expenses (126) (24) (150) (36) - (36)
Other operating expenses (net) (81) 12 (69) (37) 8 (29)
Total operating expenses (599) (85) (684) (409) (28) (437)
Operating profit 3 419 (117) 302 409 (28) 381
Loss/impairment of associates - - - (2) (7) (9)
Finance income 3 9 12 3 - 3
Finance expense (63) (41) (104) (55) (2) (57)
Profit before tax 359 (149) 210 355 (37) 318
Tax 5 (80) 28 (52) (67) 3 (64)
Profit for the year 279 (121) 158 288 (34) 254
Attributable to:
Non-controlling interests 3 - 3 2 - 2
Equity holders of the parent 276 (121) 155 286 (34) 252
279 (121) 158 288 (34) 254
Earnings per share (cents)
Basic 7 118.5 66.5 143.7 126.6
Diluted 7 117.9 66.2 142.3 125.4
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2016
2016 2015
$m $m
Profit for the year 158 254
Other Comprehensive Income
Items that may be reclassified subsequently to the income statement, net of tax:
Effect of change in investment designated at fair value 1 -
Exchange difference on translation of foreign operations (90) (67)
Total comprehensive income for the year 69 187
Attributable to:
Non-controlling interests - (2)
Equity holders of the parent 69 189
69 187
CONSOLIDATED BALANCE SHEET
AT 31 DECEMBER 2016
2016 2015
Note $m $m
Non-current assets
Intangible assets 1,719 607
Property, plant and equipment 969 507
Investment in associates and joint ventures 7 7
Deferred tax assets 172 70
Financial and other non-current assets 48 46
2,915 1,237
Current assets
Inventories 8 459 251
Income tax asset 2 3
Trade and other receivables 9 759 488
Collateralised and restricted cash 7 40
Cash and cash equivalents 155 553
Other current assets 66 25
1,448 1,360
Total assets 4,363 2,597
Current liabilities
Bank overdrafts and loans 117 115
Trade and other payables 10 343 276
Income tax provision 112 75
Other provisions 27 28
Other current liabilities 11 319 98
918 592
Net current assets 530 768
Non-current liabilities
Long-term financial debts 12 721 590
Obligations under finance leases 21 22
Deferred tax liabilities 15 21
Other non-current liabilities 13 277 20
1,034 653
Total liabilities 1,952 1,245
Net assets 2,411 1,352
Equity
Share capital 14 40 35
Share premium 282 282
Own shares (1) (1)
Other reserves 2,075 1,021
Equity attributable to equity holders of the parent 2,396 1,337
Non-controlling interests 15 15
Total equity 2,411 1,352
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2016
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 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
Total transactions with
owners, recognised
directly in equity
Issue of equity shares
(note 14) - - - - - 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 and 1 January 2016 38 (161) 1,144 1,021 35 282 (1) 1,337 15 1,352
Profit for the year - - 155 155 - - - 155 3 158
Effect of change in
investment designated
at fair value - - 1 1 - - - 1 - 1
Currency Translation Loss - (87) - (87) - - - (87) (3) (90)
Total comprehensive
income for the year - (87) 156 69 - - - 69 - 69
Total transactions with
owners, recognised
directly in equity
Issue of equity shares for
acquisition of a subsidiary
(note 14,17) 1,039 - - 1039 5 - - 1,044 - 1,044
Cost of equity-settled
employee share scheme - - 22 22 - - - 22 - 22
Deferred tax arising on
share-based payments - - 1 1 - - - 1 - 1
Dividends on ordinary
shares (note 6) - - (77) (77) - - - (77) (1) (78)
Acquisition of subsidiaries
(note 17) - - - - - - - - 1 1
Balance at 31
December 2016 1,077 (248) 1,246 2,075 40 282 (1) 2,396 15 2,411
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2016
2016 2015
Note $m $m
Net cash from operating activities 15 293 366
Investing activities
Purchases of property, plant and equipment (122) (82)
Proceeds from disposal of property, plant and equipment 4 1 31
Purchase of intangible assets (68) (55)
Proceeds from disposal of intangible assets 4 24 -
Investment in financial and other non-current assets (11) -
Investment in available for sale investments (6) (1)
Investments designated at fair value - (20)
Acquisition of business undertakings net of cash acquired (515) -
Finance income 2 3
Acquisition related amounts held in escrow account - (38)
Net cash used in investing activities (695) (162)
Financing activities
(Decrease)/increase in collateralised and restricted cash (4) 6
Proceeds from issue of long-term financial debts 471 529
Repayment of long-term financial debts (326) (91)
Proceeds from short-term borrowings 345 325
Repayment of short-term borrowings (337) (595)
Dividends paid (77) (64)
Dividends paid to non-controlling shareholders of subsidiaries (1) (2)
Interest paid (54) (49)
Proceeds from issue of new shares - 1
Proceeds from co-development and earnout payment agreement, net 2 17
Net cash generated by financing activities 19 77
Net (decrease)/increase in cash and cash equivalents (383) 281
Cash and cash equivalents at beginning of year 553 280
Foreign exchange translation movements (15) (8)
Cash and cash equivalents at end of year 155 553
Notes to the Consolidated Financial Statements
The company is a public listed company, listed at the London stock exchange
and incorporated and domiciled in the UK (registered number 5557934), the
address is 13 Hanover Square, London, W1S 1HW, United Kingdom.
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 2016 or 2015, but is
derived from those accounts. Statutory accounts for 2015 have been delivered
to the Registrar of Companies and those for 2016 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 2016 and 31
December 2015 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 statements
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 but may impact the accounting
for future transactions and arrangements.
IFRS 11 (Amendments) Accounting for Acquisitions of Interests in Joint Operations
Amendments IFRS 14 Regulatory deferral accounts
IAS 19 (Amendments) Defined Benefit Plans: Employees Contributions
IAS 16 and IAS 38 (Amendments) Clarification of Acceptable Methods of Depreciation and Amortisation
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
IAS 1 (Amendments) Disclosure Initiative
Annual improvements 2010-2012
Annual improvements 2012-2014
The following Standards and Interpretations have not been applied in these
financial statements because while in issue, are not yet effective (and in
some cases, had not yet been adopted by the EU):
IFRS 9 Financial Instruments
IFRS 15 Revenue from Contracts with Customers
IFRS 10, IFRS 12 and IAS 28 Investment Entities: Applying the Consolidation Exemption
(Amendments)
IFRS 16 Leases
IAS 12 (Amendments) Recognition of deferred tax assets for unrealised losses
IFRS 9 will impact both the measurement and disclosure of financial
instruments, IFRS 15 may have an impact on revenue recognition and related
disclosure, and IFRS 16 will impact leased assets and financial liabilities
and related disclosures.
Until a detailed review is completed; the directors do not find it practical
to provide a reasonable estimate of the effects of the above listed IFRS on
the financials statements of the Group in the future periods.
2. Going Concern
The Directors have considered the going concern position of the Company during
the period and the period end as they have in previous years. The 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 less affected by economic downturns compared to other
industries.
The Group's overall net debt position was $697 million (31 December 2015: $135
million). Net cash from operating activities in FY 2016 was $293 million (FY
2015: $366 million). The Group has $1,109 million (December 2015: $1,374
million) of undrawn short term and long term banking facilities, in addition
to $180 million (31 December 2015: $205 million) of unutilised import and
export financing limits. 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 purchase of West-Ward Columbus, show that the Group should be
able to operate well within the levels of its facilities and their related
covenants.
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. Having reassessed the
principal risks, the directors considered it appropriate to adopt the going
concern basis of accounting in preparing the financial statements.
3. Segmental reporting
For management purpose 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.
Operating profit, defined as segment result, is the principal measure used in
the decision-making and resource allocation process of 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:
Branded 2016 2016 2016 2015 2015 2015
Core results Exceptional items and other adjustments (note 4) Reported results Core results Exceptional items and other adjustments (note 4) Reported results
Year ended 31 December 2016 $m $m $m $m $m $m
Revenue 556 - 556 570 - 570
Cost of sales (274) - (274) (293) - (293)
Gross profit 282 - 282 277 - 277
Total operating expenses (170) (8) (178) (159) (13) (172)
Segment result 112 (8) 104 118 (13) 105
Injectables 2016 2016 2016 2015 2015 2015
Core results Exceptional items and other adjustments (note 4) Reported results Core results Exceptional items and other adjustments (note 4) Reported results
Year ended 31 December 2016 $m $m $m $m $m $m
Revenue 781 - 781 710 - 710
Cost of sales (276) - (276) (261) - (261)
Gross profit 505 - 505 449 - 449
Total operating expenses (165) (28) (193) (137) (1) (138)
Segment result 340 (28) 312 312 (1) 311
Injectables segment includes EUP results.
Generics 2016 2016 2016 2015 2015 2015
Core results Exceptional items and other adjustments (note 4) Reported results Core results Exceptional items and other adjustments (note 4) Reported results
Year ended 31 December 2016 $m $m $m $m $m $m
Revenue 604 - 604 151 - 151
Cost of sales (376) (32) (408) (62) - (62)
Gross profit 228 (32) 196 89 - 89
Total operating expenses (193) (17) (210) (43) (2) (45)
Segment result 35 (49) (14) 46 (2) 44
Generics segment includes West-Ward Columbus results.
Others 2016 2016 2016 2015 2015 2015
Core results Exceptional items and other adjustments (note 4) Reported results Core results Exceptional items and other adjustments (note 4) Reported results
Year ended 31 December 2016 $m $m $m $m $m $m
Revenue 9 - 9 9 - 9
Cost of sales (6) - (6) (6) - (6)
Gross profit 3 - 3 3 - 3
Total operating expenses (5) - (5) (8) - (8)
Segment result (2) - (2) (5) - (5)
"Others" mainly comprise Arab Medical Containers Ltd, International
Pharmaceutical Research Centre Ltd and the chemicals division of Hikma
Pharmaceuticals Ltd (Jordan).
Group 2016 2016 2016 2015 2015 2015
Core results Exceptional items and other adjustments (note 4) Reported results Core results Exceptional items and other adjustments (note 4) Reported results
Year ended 31 December 2016 $m $m $m $m $m $m
Revenue 1,950 - 1,950 1,440 - 1,440
Cost of sales (932) (32) (964) (622) - (622)
Gross profit 1,018 (32) 986 818 - 818
Total operating expenses (533) (53) (586) (346) (16) (362)
Segment result 485 (85) 400 472 (16) 456
Unallocated expenses (66) (32) (98) (63) (12) (75)
Operating profit 419 (117) 302 409 (28) 381
Loss/impairment of associates - - - (2) (7) (9)
Finance income 3 9 12 3 - 3
Finance expense (63) (41) (104) (55) (2) (57)
Profit before tax 359 (149) 210 355 (37) 318
Tax (80) 28 (52) (67) 3 (64)
Profit for the year 279 (121) 158 288 (34) 254
Attributable to:
Non-controlling interests 3 - 3 2 - 2
Equity holders of the parent 276 (121) 155 286 (34) 252
279 (121) 158 288 (34) 254
Unallocated corporate expenses are primarily made up of employee costs,
professional fees, travel expenses, donations, and acquisition related
expenses.
Branded Injectables Generics Corporate and others Group
Segment assets and liabilities 2016 $m $m $m $m $m
Additions to property, plant and equipment (cost) 14 38 56 10 118
Acquisition of business property plant and equipment
(note 17)
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