REG - Hikma Pharmaceutical - Final Results <Origin Href="QuoteRef">HIK.L</Origin> - Part 3
16/03/2016 07:06
- Part 3: For the preceding part double click ID:nRSP2201Sb
Tax
2015 2014
$m $m
Current tax:
Foreign tax 68 82
Adjustments to prior year 1 (9)
Deferred tax (5) 7
64 80
UK corporation tax is calculated at 20.2% (2014: 21.5%) of the estimated assessable profit made in the UK for the year.
The Group incurred a tax expense of $64 million, compared with $80 million in 2014. The effective tax rate is 20.1%,
(2014: 22.1%). The reduction in the effective tax rate reflects increased earnings in lower taxed jurisdictions, combined
with lower earnings in the US. In 2016, the effective tax rate is expected to be around 25%. This is expected to return
closer to 2014 levels over the medium term.
Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdiction.
The charge for the year can be reconciled to profit before tax per the consolidated income statement as follows:
2015 2014*
$m $m
Profit before tax 318 362
Tax at the UK corporation tax rate of 20.2% (2014: 21.5%) 64 78
Profits taxed at different rates (13) 12
Permanent differences (11) (37)
Temporary differences for which no benefit is recognised 11 13
Change in provision for uncertain tax positions 11 20
State and local taxes 1 3
Prior year adjustments 1 (9)
Tax expense for the year 64 80
*The format of the 2015 tax reconciliation has been expanded to clarify the reconciling items. For consistency, we have
re-classified the 2014 tax reconciliation using the same methodology.
Further details of the elements of the tax reconciliation are described below:
Profits taxed at different rates refer to non-UK profits taxed at statutory rates different from the UK statutory rate.
Permanent differences relate principally to income which is not subject to tax due to statutory exemptions.
Temporary differences for which no benefit is recognised includes items on which it is not possible to book deferred tax
and comprise mainly of the impact of creating/(utilising) unrecognised temporary differences.
Prior year adjustments include amounts settled with tax authorities which differ from the amounts previously provided.
6. Dividends
2015 2014
$m $m
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 December 2014 of 15.0 cents (2013: 13.0 cents) per share 30 25
Interim dividend for the year ended 31 December 2015 of 11.0 cents (2014: 7.0 cents) per share 22 14
Special final dividend for the year ended 31 December 2014 of 6.0 cents (2013: 4.0 cents) per share 12 8
Special Interim dividend for the year ended 31 December 2015 of nil (2014: 4.0 cents) per share - 8
64 55
The proposed final dividend for the year ended 31 December 2015 is 21.0 cents (2014: 15.0 cents plus 6.0 cents as a special
dividend) per share. This brings the full year dividend to 32.0 cents (2014: 22.0 cents plus 10.0 cents as a special
dividend).
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting on 12 May 2016 and has not
been included as a liability in these financial statements. Based on the number of shares in issue at 31 December 2015
(199,421, 000), the unrecognised liability is $42 million.
7. Earnings per share
Earnings per share is calculated by dividing the profit attributable to equity holders of the parent by the weighted
average number of ordinary shares. The number of ordinary shares used for the basic and diluted calculations is shown in
the table below. Core basic earnings per share and Core diluted earnings per share are intended to highlight the Core
results of the Group before exceptional items and other adjustments. A reconciliation of the basic and core earnings used
is also set out below:
2015 2014
$m $m
Earnings for the purposes of basic and diluted earnings per share being net profit attributable to equity holders of the parent 252 278
Exceptional items (note 4) 19 11
Other adjustments:
-Intangible amortisation other than software (note 4) 16 14
-Co-development and earnout payment agreement finance cost (note 4) 2 -
Tax effect of adjustments (note 4) (3) (4)
Core earnings for the purposes of Core basic and diluted earnings per share being adjusted net profit attributable to equity holders of the parent 286 299
Number Number
Number of shares 'm 'm
Weighted average number of Ordinary Shares for the purposes of basic earnings per share 199 198
Effect of dilutive potential Ordinary Shares:
Share-based awards 2 2
Weighted average number of Ordinary Shares for the purposes of diluted earnings per share 201 200
2015 2014
Earnings per share Earnings per share
Cents Cents
Basic 126.6 140.4
Diluted 125.4 139.0
Core basic 143.7 151.0
Core diluted 142.3 149.5
8. Inventories
As at 31 December
2015 2014
$m $m
Finished goods 55 60
Work-in-progress 33 33
Raw and packing materials 152 159
Goods in transit 11 21
251 273
Goods in transit includes inventory held at third parties whilst in transit between Group companies.
9. Trade and other receivables
As at 31 December
2015 2014
$m $m
Trade receivables 432 384
Prepayments 39 42
VAT and sales tax recoverable 15 12
Employee advances 2 1
488 439
10. Trade and other payables
As at 31 December
2015 2014
$m $m
Trade payables 139 129
Accrued expenses 122 105
Other payables 15 14
276 248
Other payables mainly include employees' provident fund liability of $5 million (31 December 2014: $5 million), which
mainly represents the outstanding contributions to the Hikma Pharmaceuticals Ltd (Jordan) retirement benefit plan, on which
the fund receives 5% interest.
11. Other current liabilities
As at 31 December
2015 2014
$m $m
Deferred revenue 16 46
Return and free goods provision 49 35
Others* 32 28
97 109
*The others balance above includes rebate liabilities across the Group.
12. Long-term financial debts
As at 31 December
2015 2014
$m $m
Long-term loans 141 209
Long-term borrowings (Eurobond) 494 -
Less: current portion of loans (45) (64)
Long-term financial loans 590 145
Breakdown by maturity:
Within one year 45 64
In the second year 35 65
In the third year 20 51
In the fourth year 17 13
In the fifth year 513 9
Thereafter 5 7
635 209
Breakdown by currency:
US Dollar 589 173
Euro 3 6
Jordanian Dinar - 4
Algerian Dinar 6 13
Saudi Riyal 1 -
Egyptian Pound 33 8
Tunisian Dinar 3 5
635 209
The loans are held at amortised cost.
13. Other non-current liabilities
Co-development and earnout payment agreement
The liability mainly relates to the fair value of future payments on a co-development and earnout agreement. Through this
agreement, milestone payments dependent on successful clinical development of defined products are received by the Group.
In return of receiving such milestone payments, the Group has agreed to pay the contracting party a certain percentage of
future sales of those products. As at 31 December 2015, the liability associated with these earnout payments was adjusted
to reflect the present value of the expected future cash outflows and the difference is presented as a financing cost.
14. Share capital
Issued and fully paid - included in shareholders' equity:
2015 2014
Number 'm $m Number 'm $m
At 1 January 199 35 198 35
Issued during the year 1 - 1 -
At 31 December 200 35 199 35
15. Net cash from operating activities
2015 2014
$m $m
Profit before tax 318 362
Adjustments for:
Depreciation, amortisation, and impairment of:
Property, plant and equipment 51 49
Intangible assets 22 23
Investment in associate 7 -
(Gain)/Loss on disposal of property, plant and equipment (11) 1
Gain on disposal of intangible assets - (1)
Movement on provisions 3 5
Cost of equity-settled employee share scheme 15 8
Finance income (3) (4)
Interest and bank charges 57 38
Results from associates 2 6
Cash flow before working capital 461 487
Change in trade and other receivables (78) (16)
Change in other current assets (1) -
Change in inventories 4 2
Change in trade and other payables 28 24
Change in other current liabilities 3 7
Cash generated by operations 417 504
Income tax paid (51) (79)
Net cash generated from operating activities 366 425
16. Related parties
Transactions between the Company and its subsidiaries have been eliminated on consolidation and are not disclosed in this
note. Transactions between the Group and its associates and other related parties are disclosed below.
Trading transactions:
During the year, Group companies entered into the following transactions with related parties:
Darhold Limited: is a related party of the Group because it is considered one of the major shareholders of Hikma
Pharmaceuticals PLC with an ownership percentage of 29.06% at end of 2015 (2014: 28.8%).Further details on the relationship
between Mr Said Darwazah, Mr Mazen Darwazah and Mr Ali Al-Husry, and Darhold Limited are given in the Directors' Report.
Other than dividends (as paid to all shareholders), there were no transactions between the Group and Darhold Limited during
the year.
Capital Bank - Jordan: is a related party of the Group because two Hikma Pharmaceuticals PLC board members are also board
members of Capital Bank - Jordan. Additionally a senior member of Hikma management team is a board member of one company
owned by Capital Bank - Jordan. Total cash balance at Capital Bank - Jordan as of 31 December 2015 was $9.4 million (31
December 2014: $5.7 million). Utilisation of facilities granted by Capital Bank - Jordan to the Group amounted to $nil (31
December 2014: $nil). Interest expense/income is within market rate.
Jordan International Insurance Company: is a related party of the Group because one board member of the Company is also a
board member of Hikma Pharmaceuticals PLC. The Group's insurance expense for Jordan International Insurance Company
contracts during the year was $0.5 million (2014: $0.2 million). The amounts due to Jordan International Insurance Company
were $0.4 million (2014: $nil).
Labatec Pharma: is a related party of the Group because it is owned by the Darwazah family. During 2015, the Group total
sales to Labatec Pharma amounted to $0.9 million (2014: $0.5 million). At 31 December 2015, the amount owed from Labatec
Pharma to the Group was $0.2 (31 December 2014: $ 0.1 million).
Arab Bank: is a related party of the Group because one Hikma Pharmaceuticals PLC senior management member is also a board
member of Arab Bank PLC. Total cash balance at Arab Bank was $55.7 million (31 December 2014: $90.4 million). Utilisation
of facilities granted by Arab Bank to the Group amounted to $56.6 million (31 December 2014: $115.0 million). Interest
expense/income is within market rate.
American University of Beirut: is a related party of the Group because one board member of the Group is also a trustee of
the University. During 2015, fees of $0.2 million (2014: $0.1 million) were paid. At 31 December 2015, the amount owed to
American University of Beirut from the Group amounted to $nil (31 December 2014: $0.1 million).
HikmaCure: The Group holds a 50:50 joint venture ("JV") agreement with MIDROC Pharmaceuticals Limited. The JV is called
HikmaCure. Hikma and MIDROC invested in HikmaCure in equal proportions and have committed to provide up to $22 million each
in cash of which $2.5 million has been paid in previous periods.
Unimark: During 2015, the Group has impaired the remaining investment balance related to Unimark Remedies Limited. The
exceptional impairment of investment was $7 million. As at 31 December 2015, the Group held a non-controlling interest of
23.1% in Unimark Remedies Limited. During 2015, the Group paid an amount of $nil in relation to a products development
agreement (2014: $2.5 million). Hikma's share in Unimark Remedies Limited is being divested during 2016 for minimal
value.
Haosun: The Group held a non-controlling interest of 30.1% in Hubei Haosun Pharmaceutical Co., Ltd ("Haosun") at 31
December 2015 (31 December 2014: 30.1%). During 2015, total purchases from Haosun were $ 0.6 million (2014: $1.0 million).
17. Acquisition of a business
On 15 July 2014 Hikma completed its acquisition of the US generic injectables business, Bedford Laboratories ("Bedford")
from Ben Venue Laboratories, Inc. ("Ben Venue"), a member of the Boehringer Ingelheim Group of Companies. The consideration
for the acquisition comprised of an upfront cash payment of $225 million which was paid on 15 July 2014 and contingent cash
payments which are, subject to the achievement of performance-related milestones over a period of five years from closing
the transaction.
A reduction of $8 million was made to the provisional goodwill recognised on the acquisition of Bedford as a result of the
adjustment to inventory, property plant and equipment and deferred tax made prior to the end of the measurement period on
15 July 2015.
18. Subsequent events
a) On 28 July 2015 Hikma announced that it has agreed to acquire Roxane Laboratories Inc. and Boehringer Ingelheim Roxane
Inc. (together, "Roxane"), from Boehringer Ingelheim ("Boehringer"). Roxane is a well-established US specialty generics
company with a highly differentiated product portfolio and best-in-class R&D capabilities.
On closing the transaction on 29 February 2016, Hikma paid cash consideration of $575 million (net of certain working
capital and other adjustments) and issued 40 million Ordinary Shares to Boehringer (representing an estimated 16.71 per
cent. of Hikma issued share capital immediately following the issuance). The total consideration paid was approximately
$1.6 billion based on Hikma's share price of £18.81 and the US:GBP exchange rate of 1.3879:1 on 29 February 2016. Hikma has
also agreed to make further cash payments of up to $125 million, contingent to the achievement of certain US FDA approval
milestones, depending on specific product, type of approval and dosage approval and further exclusivity and ten-year
quarterly sales based contingent payments once the products are commercialised.
b) On 8 September 2015 Hikma announced that it has agreed to acquire 97.73% of the share capital of EIMC United
Pharmaceuticals ("EUP") from a consortium of shareholders. EUP is a pharmaceutical manufacturing company specialising in
oncology products. The acquisition of EUP will strengthen Hikma's position in the large and fast growing Egyptian market,
add an attractive portfolio and pipeline in the key strategic areas of oncology and injectables, add a manufacturing
facility in Egypt, with both oral and injectable lines, and leverage Hikma's established market position in Egypt and
strong sales and marketing team. An amount of $ 38 million was held in an Escrow account related to the acquisition of EUP
as of 31 December 2015. The acquisition was completed on 17 February 2016.
Due to the proximity of the completion date of both transactions to the date of issuance of the financial statements, the
initial accounting for the business combination is in progress and as such it is not practical to disclose the Purchase
Price Allocation.
19. Foreign exchange currencies
Year end rates Average rates
2015 2014 2015 2014
USD/EUR 0.9168 0.8226 0.9006 0.7523
USD/Sudanese Pound 9.6600 6.2696 9.6600 6.0277
USD/Algerian Dinar 107.1317 87.9245 100.4033 80.6145
USD/Saudi Riyal 3.7495 3.7495 3.7495 3.7495
USD/British Pound 0.6754 0.6437 0.6540 0.6068
USD/Jordanian Dinar 0.7090 0.7090 0.7090 0.7090
USD/Egyptian Pound 7.8309 7.1582 7.7160 7.0972
USD/Japanese Yen 120.3800 119.9500 121.0700 105.8700
USD/Moroccan Dirham 9.8476 9.0154 9.8008 9.0155
USD/Tunisian Dinar 2.0321 1.8612 1.9623 1.7001
The Jordanian Dinar and Saudi Riyal have no impact on the consolidated income statement as those currencies are currently
pegged to the US Dollar.
This information is provided by RNS
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