REG - Hikma Pharmaceutical - Final Results
24/02/2022 07:00
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RNS Number : 6389C Hikma Pharmaceuticals Plc 24 February 2022
Hikma delivers another year of profitable growth in 2021 and announces share
buyback
London, 24 February 2022 - Hikma Pharmaceuticals PLC ('Hikma' or 'Group'), the
multinational pharmaceutical company, today reports its preliminary audited
results for the year ended 31 December 2021.
Siggi Olafsson, Chief Executive Officer of Hikma, said:
"Hikma delivered strong financial results in 2021, marking another successful
year of solid growth and continued strategic momentum. Our operational
strength and high quality standards ensured our ability to provide customers
with a consistent supply of essential medicines in a challenging environment.
I am grateful to Hikma colleagues around the world for their steadfast
commitment to helping the millions of patients who rely on our medicines every
day.
As we look to 2022 and beyond, I am most excited about how we are continuing
to build and evolve our portfolio with important investments and new
partnerships. Our Injectables business is now supplying US hospitals with
sterile compounded pharmaceutical products, has expanded into Canada, and is
set to grow further with the acquisition of Custopharm(1) and our expansion
into US biosimilars. Our Generics business is bringing more complex and
specialty products to market, launching Kloxxado(TM) and generic Advair
Diskus(®) in 2021, and with additional product launches planned for this
year. Our Branded business is delivering consistent growth, with an increased
focus on medications to treat chronic illnesses. We have an exciting platform
that will drive continued growth and progress in the year ahead."
Highlights:
Reported results (statutory) 2021 2020 Change Constant currency(2)
$ million $ million change
Revenue 2,553 2,341 9% 7%
Operating profit 582 579 1% 3%
Profit attributable to shareholders 421 431 (2)% 2%
Cashflow from operating activities 638 464 38% -
Basic earnings per share (cents)(3) 182.3 182.6 0% 4%
Total dividend per share (cents) 54.0 50.0 8% -
Core results(4) (underlying) 2021 2020 Change Constant currency(2)
$ million $ million change
Core revenue 2,553 2,341 9% 7%
Core operating profit 632 566 12% 15%
Core profit attributable to shareholders 450 408 10% 15%
Core basic earnings per share (cents)(3) 194.8 172.9 13% 17%
Strong 2021 performance
· Group revenue up 9%, reflecting a good performance from all three
businesses
· Core operating profit up 12%, driven by a further step up in Generics
margin
· Core profit attributable to shareholders up 10%
· Reported profit attributable to shareholders down 2% and basic EPS was
flat
· Strong cashflow from operating activities, up 38% to $638 million
· Continued to invest 6% of revenue in R&D, with a growing pipeline
of complex and specialty products
· Maintained healthy balance sheet, with net debt(5) of $420 million and
low leverage at 0.6x net debt to core EBITDA(6, 7)
· Full year dividend of 54 cents per share, up from 50 cents per share in
2020
Continued momentum, with growth in all three businesses
· Injectables: Good revenue growth across all three geographies,
including in the US following a strong 2020. Injectables core operating profit
grew 5%, with a strong operating margin of 37.5%
· Generics: 10% revenue growth and core operating margin improvement of
300 bps to 24.6%, reflecting a good performance from recently launched
products
· Branded: Revenue grew 9%, reflecting a good contribution from products
used to treat chronic illnesses and core operating margin was 18.7%, down from
20.6% in 2020. Excluding the impact of currency and hyperinflation, revenue
grew 5% and core operating margin was stable
Further portfolio expansion and increased investment to support growth
· Launched generic Advair Diskus(®) in April and are gradually growing
market share, but expect competition to intensify in 2022
· Expansion of specialty product offering in the US, including the launch
of Kloxxado(TM) 8mg naloxone nasal spray
· Positioning for future growth in Injectables with the signing of two US
biosimilar agreements, the acquisition of Custopharm(8), the launch of a new
US compounding business and post year-end expansion into Canada through
acquisition of Teligent assets
· Further complex medicines added to Branded portfolio, including eight
oral oncology products in Algeria
Share buyback
· Announcing a share buyback programme of up to $300 million to be
executed during 2022
· Hikma's strategic focus remains unchanged, prioritising the creation of
further shareholder value through investing in organic and inorganic growth
· Buyback reflects the Group's strong cash generation, balance sheet
strength and the Board's confidence in the future growth prospects of the
business
· The buyback has been sized to maintain balance sheet efficiency whilst
leaving significant headroom for continued investment opportunities
New environmental target
· Announcing new target to reduce Hikma's greenhouse gas emissions by 25%
by 2030
2022 outlook
· Injectables revenue growth in the low to mid-single digits, with core
operating margin in the range of 35% to 37%
· Generics revenue growth in the range of 8% to 10% and core operating
margin in the range of 24% to 25%
· Branded revenue expected to be in line with 2021. Excluding the impact
of hyperinflation in 2021, expect Branded revenue to grow in the mid-single
digits
Further information:
A pre-recorded presentation will be available at www.hikma.com
(http://www.hikma.com) at 07:00 GMT. Hikma will also hold a live Q&A
conference call at 9:30am GMT, and a recording will be made available on the
Company's website.
To join via conference call please dial:
United Kingdom: 0800 640 6441
United Kingdom (local): 020 3936 2999
All other locations: +44 20 3936 2999
Access code: 446040
For further information please contact Tiina Lugmayer - tlugmayer@hikma.com
(mailto:tlugmayer@hikma.com) .
Hikma (Investors):
Susan Ringdal +44 (0)20 7399 2760/ +44 (0)7776 477050
EVP, Strategic Planning and Global Affairs
Guy Featherstone +44 (0)20 3892 4389/ +44 (0)7795 896738
Senior Investor Relations Manager
Layan Kalisse +44 (0)20 7399 2788/ +44 (0)7970 709912
Investor Relations Analyst
Teneo (Press):
Charles
Armitstead
+44 (0)7703 330 269
About Hikma:
Hikma helps put better health within reach every day for millions of people
around the world. For more than 40 years, we've been creating high-quality
medicines and making them accessible to the people who need them.
Headquartered in the UK, we are a global company with a local presence across
the United States (US), the Middle East and North Africa (MENA) and Europe,
and we use our unique insight and expertise to transform cutting-edge science
into innovative solutions that transform people's lives. We're committed to
our customers, and the people they care for, and by thinking creatively and
acting practically, we provide them with a broad range of branded and
non-branded generic medicines. Together, our 8,700 colleagues are helping to
shape a healthier world that enriches all our communities. We are a leading
licensing partner, and through our venture capital arm, are helping bring
innovative health technologies to people around the world. For more
information, please visit: www.hikma.com (http://www.hikma.com)
Hikma Pharmaceuticals PLC (LSE: HIK) (NASDAQ Dubai: HIK) (OTC: HKMPY)
(LEI:549300BNS685UXH4JI75) (rated BBB-/stable S&P, BBB-/stable Fitch)
STRATEGIC REVIEW
Throughout 2021 we have been driven by our purpose of putting better health
within reach, every day. This is evident in the products we have launched, the
investments we have made and the ongoing supply of important medicines across
the geographies in which we operate.
Strategic progress across the Group
Our Injectables business saw good growth in 2021 across all our regions.
Thanks to the breadth of our portfolio, flexible global manufacturing
facilities and our resilient supply chain, this is a strong and differentiated
business. In the US, we continue to play a leading role in supplying hospitals
with the medicines they need and are now a top two supplier of generic
injectable medicines by volume, with a portfolio of over 120 products. Since
December, we are also supplying hospitals with compounded pharmaceutical
products out of our new sterile compounding facility in Dayton, New Jersey.
We remain focussed on having a portfolio fit for the future, with ongoing new
launches, and have made exciting progress this year building our portfolio and
pipeline through acquisition and partnership, including for biosimilars in the
US.
We already have experience commercialising biosimilars in MENA, where these
products contributed to our growth in 2021. We are achieving good growth in
Europe, as we increase supply of our own products and enter new markets, such
as France. We have also benefitted from valuable contract manufacturing
opportunities, leveraging our extensive lyophilisation capacity in Portugal.
Our Generics business delivered strong revenue growth and margin expansion in
2021, as we have focussed on important new launches, optimised the cost base
and drove operating efficiencies.
We added several products to our Generics portfolio in 2021, including the
launches of generic Advair Diskus(®) and our novel naloxone nasal spray,
Kloxxado™. These important product launches demonstrate our move towards
more complex generic medicines and specialty branded products. In total we
launched seven products while also continuing to invest in our state-of-the
art manufacturing facility in Columbus, Ohio. Our local presence in the US
enabled us to respond quickly to customer needs and minimise supply
disruptions arising from challenges related to the COVID-19 pandemic.
In our Branded business, we have continued to strengthen our market position
and we are now ranked the fourth largest pharmaceutical company in the MENA
region, by sales. The strategy of tiering the markets is delivering. Our
Algeria business saw particularly good growth as we launched new products,
including from our new oral oncology plant, the first local Algerian facility
producing oral oncology products. We are also seeing good growth in our other
markets, including Jordan, Morocco and UAE. Our continued focus on building a
portfolio of high-value treatments for chronic illnesses is driving revenue
growth, enhancing our market position and strengthening our customer
relationships.
Investing in R&D, new technologies and capabilities and deploying our
balance sheet
We continue to invest in R&D to develop products where we see a patient
need. In 2021, we spent 6% of revenue on R&D, in line with our target of
6% to 7%. We also strengthened our R&D capabilities, including adding a
new site for complex injectables in Warren, New Jersey.
Throughout the year, we continued to expand our manufacturing capacity, and
enhance existing facilities to stay at the forefront of manufacturing
excellence. We invested in a new facility in Dayton, New Jersey, which will
carry out sterile compounding activities for our Injectables business. With
our focus on quality and our deep relationships with hospitals in the US, we
will be able to satisfy a growing need for ready-to-administer formats of
medicines. In addition to this, we also invested in new filling lines,
expanded warehousing and enhanced capabilities across our operational
footprint.
Partnerships are also integral to Hikma's strategy. 2021 saw continued
momentum as we entered into new partnerships and built on existing ones in
each of our businesses. Some of these opportunities will contribute in the
near term, while others will help to drive future growth. The biosimilar deals
we signed with Bio-Thera and Gedeon Richter will enable us to bring important
complex injectable medicines to the US in the medium term.
We are also leveraging our balance sheet to deliver attractive inorganic
growth opportunities. In 2021, as part of the growth plans for our Injectables
business, we announced the acquisition of Custopharm, which remains subject to
FTC approval. Upon closing, this will bring an existing portfolio of
differentiated products and additional pipeline products and enhanced R&D
capabilities. Post year-end, we announced our expansion in Canada with the
acquisition of Teligent's Canadian assets. Our teams will continue to assess
opportunities as they arise to ensure we are deploying our capital in line
with our strategy and delivering long-term value to our shareholders.
Capital allocation priorities and share buyback
Alongside our 2018 capital markets day, the Board set out its capital
allocation priorities which have guided our deployment of cash flows over
recent years. These priorities remain unchanged
1. Reinvesting for growth
2. Building long-term partnerships
3. M&A in-line with strategy
4. Maintaining a consistent dividend pay-out
Hikma has also maintained a strong balance sheet underpinned by strong free
cash flow generation. The Board is today announcing a share buyback of up to
$300 million which will balance the maintenance of an efficient balance sheet
whilst retaining substantial flexibility for continued investment and M&A.
Caring for our people
Hikma is an inclusive place to work, underpinned by our strong culture of
progress and belonging and our values: innovative, caring and collaborative.
Throughout 2021, we worked to reinforce our values and ensure they are
reflected in our strategy, practices and policies. Shaping our culture and
equipping our people with the right tools to be at their best continues to be
of absolute importance. We evolved our Diversity, Equity and Inclusion
Committee, which supports diversity and inclusion initiatives, such as our new
employee resource groups programme, and continued to invest in upskilling our
people through a number of hybrid learning and development programmes.
In a year where our people continued to adapt and stepped up to keep our
plants operational, our strong culture of progress and belonging enabled us to
be resilient, perform at our best and provided us with the opportunity to
explore new ways of working together both across the business and with our
partners and customers.
Acting responsibly
Underpinning all of this, we are ensuring we operate responsibly in all
aspects of what we do. First and foremost, we have a responsibility for our
customers and their patients, who rely on our important medicines every day;
but our mission to advance health and wellbeing also extends to the broader
wellbeing of the communities in which we operate. It extends to ensuring that
our own people are empowered by an inclusive culture where everyone can
thrive, and to understanding and minimising our impact on the environment. We
have spent time assessing this impact and understanding how we can minimise
it, and are pleased that the Board has approved a new target to reduce our
greenhouse gas emissions by 25% by 2030, compared to a 2020 baseline. Finally,
operating responsibly extends to building trust and ensuring quality in all
that we do, by upholding ethical standards and acting with integrity.
Outlook
Our strategy continues to deliver results and we are pleased with the progress
made to date, which is reflected in this strong set of results. Looking at
2022, the business is well positioned to continue to grow, benefitting from
our broad portfolio and pipeline, as well as our high-quality operations.
For Injectables, as the COVID-19 volatility continues to ease and we see a
gradual return of elective surgeries, we expect for revenue to grow in the low
to mid-single digits, supported by new product launches. We expect core
operating margin to be in the range of 35% to 37%. Our guidance does not
include a contribution from Custopharm, which remains subject to FTC approval.
For Generics, we expect revenue to grow in the range of 8% to 10% and for core
operating margin to be in the range of 24% to 25%. This reflects a good
contribution from new and recent launches, which we expect will more than
offset an acceleration in price erosion. Our guidance assumes a mid-year
launch of sodium oxybate.
For Branded, we expect revenues in 2022 to be in line with 2021. Excluding the
impact from hyperinflation in 2021, we expect Branded revenue to grow in the
mid-single digits.
We expect Group core net finance expense to be around $55 million and the core
effective tax rate to be in the range of 22% to 23%.
We expect Group capital expenditure to be in the range $160 million to $180
million.
FINANCIAL REVIEW
The financial review set out below summarises the reported and core(9)
performance of the Hikma Group and our three main business segments,
Injectables, Generics and Branded, for the year ended 31 December
2021 .
Group
2021 2020 Change Constant currency
$ million $ million change
Revenue 2,553 2,341 9% 7%
Core revenue 2,553 2,341 9% 7%
Gross profit 1,301 1,201 8% 6%
Core gross profit 1,301 1,213 7% 5%
Core gross margin 51.0% 51.8% (0.8)pp (0.8)pp
Operating profit 582 579 1% 3%
Core operating profit 632 566 12% 15%
Core operating margin 24.8% 24.2% 0.6pp 1.7pp
EBITDA 727 670 9% 10%
Core EBITDA 727 674 8% 10%
Group revenue grew 9% reflecting growth in each of our three businesses. Group
gross margin reduced slightly, primarily due to a shift in product mix in our
Injectables and Branded businesses.
Group operating expenses were $719 million (2020: $622 million). Excluding
adjustments related to the amortisation of intangible assets (other than
software) of $73 million (2020: $42 million) and net income from exceptional
items of $23 million (2020: $67 million), Group core operating expenses were
$669 million (2020: $647 million).
Selling, general and administrative (SG&A) expenses were $561 million
(2020: $509 million). Excluding the amortisation of intangible assets (other
than software) and exceptional items, core SG&A expenses were $488 million
(2020: $464 million), up 5%, reflecting good control of costs while increasing
spend in certain areas such as sales and marketing for specialty products in
the Generics business and a gradual return to pre-COVID marketing activities
in our Branded business.
Research and development (R&D) expenses were $143 million (2020: $137
million). This reflects an increase in the second half as the Group focussed
on the future pipeline. Core R&D was 6% of Group core revenue, in line
with our strategy.
Other net operating expenses were $15 million (2020: $26 million income).
Excluding exceptional items(10), core other net operating expenses were $38
million (2020: $44 million), which primarily comprised foreign
exchange-related costs.
The improvement in core operating margin to 24.8% was primarily driven by the
good performance in the Generics business.
Group core revenue by business segment
2021 2020
$ million $ million
Injectables 1,053 41% 977 42%
Generics 820 32% 744 32%
Branded 669 26% 613 26%
Others 11 0% 7 0%
Total 2,553 2,341
Group core revenue by region
2021 2020
$ million $ million
US 1,511 59% 1,406 60%
MENA 847 33% 770 33%
Europe and ROW 195 8% 165 7%
Total 2,553 2,341
Injectables
2021 2020 Change Constant currency change
$ million $ million
Revenue 1,053 977 8% 6%
Core revenue 1,053 977 8% 6%
Gross profit 581 563 3% 2%
Core gross profit 581 563 3% 2%
Core gross margin 55.2% 57.6% (2.4)pp (1.9)pp
Operating profit 351 354 (1)% 1%
Core operating profit 395 377 5% 6%
Core operating margin 37.5% 38.6% (1.1)pp 0.3pp
Injectables revenue grew 8% in 2021, benefitting from our broad portfolio,
geographic spread, flexible manufacturing capabilities and new launches across
our regions.
US Injectables revenue grew 4% to $691 million (2020: $662 million),
reflecting a good performance from new launches while maintaining demand for
our broad product portfolio.
MENA Injectables revenue was $180 million, up 13% on a reported basis and 4%
on a constant currency basis (2020: $160 million). This growth reflects a
strong performance across most of our markets and good demand for our growing
biosimilar portfolio where we continue to grow the market by increasing
patient access. This more than offset temporary disruptions in some markets.
European Injectables revenue was $182 million, up 17% (2020: $155 million).
In constant currency, European Injectables revenue increased by 13%. This
reflects a good performance from our own products, recent launches and
continued demand for contract manufacturing.
Core gross profit grew 3% to $581 million and gross margin declined to 55.2%,
reflecting a normalisation in product mix following the strong demand for
COVID-19 related products in 2020.
Injectables core operating profit, which excludes the amortisation of
intangible assets (other than software)(11) grew 5% and core operating margin
was 37.5%, compared with 38.6% in 2020. In constant currency, core operating
profit grew 7% and core operating margin remained largely stable, reflecting
good control of costs.
During the year, the Injectables business launched 15 products in the US, 29
in MENA and 34 in Europe. We submitted 93 filings to regulatory authorities
across all markets. This primarily reflects our efforts to expand our European
portfolio and register products in new European markets. We also signed new
licensing deals, including to enter the US biosimilar market.
In 2022, we expect Injectables revenue to grow in the low to mid-single
digits. We expect core operating margin to be in the range of 35% to 37%.
Generics
2021 2020 Change
$ million $ million
Revenue 820 744 10%
Core revenue 820 744 10%
Gross profit 388 329 18%
Core gross profit 388 341 14%
Core gross margin 47.3% 45.8% 1.5pp
Operating profit 217 203 7%
Core operating profit 202 161 25%
Core operating margin 24.6% 21.6% 3.0pp
The good revenue growth in our Generics business, up 10% in 2021, was
primarily driven by a strong performance from recently launched products,
which more than offset increased price erosion.
Generics core gross profit growth and margin expansion was primarily due to
product mix, with good demand for profitable recent launches.
We delivered a strong improvement in Generics core operating profit, which
excludes the amortisation of intangible assets (other than software) and
exceptional items(12), mostly due to the improvement in gross profit. While
sales and marketing spend increased as a result of the expansion of our
specialty business, this was partially offset by good control of other
operating expenses. For the year, Generics core operating margin was 24.6%,
ahead of our guidance of 22% to 24%.
In 2021, the Generics business launched seven products and submitted five
files to regulatory authorities.
In 2022, we expect Generics revenue to grow in the range of 8% to 10%. We
expect core operating margin to be in the range of 24% to 25%.
Branded
2021 2020 Change Constant currency change
$ million $ million
Revenue 669 613 9% 5%
Core revenue 669 613 9% 5%
Gross profit 328 307 7% 0%
Core gross profit 328 307 7% 0%
Core gross margin 49.0% 50.1% (1.1)pp (2.0)pp
Operating profit 104 120 (13)% (7)%
Core operating profit 125 126 (1)% 5%
Core operating margin 18.7% 20.6% (1.9)pp 0.0pp
Our Branded business continued to deliver growth in 2021, with revenue up 9%,
which includes the impact of hyperinflation. In constant currency, revenue
grew 5%, with a good performance across our markets, particularly in Algeria,
where we saw the benefits of our new oncology plant, and in Egypt, where we
benefitted from strong demand for our chronic treatments. Our chronic
treatments also saw good demand in our retail business in Saudi Arabia, which
partially offset lower demand in the government tender business. Other
markets, including Jordan, UAE and Morocco grew strongly. Across the region we
benefitted from our focussed commercial efforts, a responsive supply chain and
the breadth of our portfolio.
Core gross profit grew 7% and, on a constant currency basis, core gross profit
was flat primarily due to an increase in slow-moving inventory resulting from
pandemic-related demand fluctuations. Core gross margin contracted slightly to
49.0%.
Core operating profit, which excludes the amortisation of intangibles (other
than software) and exceptional items(13), fell 1%. In constant currency, core
operating profit grew 5% as higher investment in R&D and increased sales
and marketing spend due to activities returning to pre-COVID levels was offset
by good control of G&A costs. Core operating margin decreased primarily
due to devaluation of the Sudanese pound. In constant currency, core operating
margin was stable.
During the year, the Branded business launched 87 products and submitted 144
filings to regulatory authorities. Revenue from in-licensed products
represented 36% of Branded revenue (2020: 37%).
We expect Branded revenue in 2022 to be in line with 2021. Excluding the
impact of hyperinflation in 2021, we expect Branded revenue to grow in the
mid-single digits.
Other businesses
Other businesses, which primarily comprises Arab Medical Containers (AMC), a
manufacturer of plastic specialised medicinal sterile containers, and
International Pharmaceuticals Research Centre (IPRC), which conducts
bio-equivalency studies, contributed revenue of $11 million in 2021 (2020: $7
million) with an operating profit of $2 million (2020: $nil).
Research and development
Our investment in R&D and business development enables us to continue
expanding the Group's product portfolio. During 2021, we had 172 new
launches and received 243 approvals. To ensure the continuous development of
our product pipeline, we submitted 242 regulatory filings.
2021 submissions(14) 2021 approvals(14) 2021 launches(14)
Injectables 93 114 78
US 13 12 15
MENA 24 66 29
Europe 56 36 34
Generics 5 5 7
Branded 144 124 87
Total 242 243 172
Net finance expense
2021 2020 Change Constant currency change
Finance income 30 47 0% 4%
Finance expense 69 69 13% 17%
Net finance expense 39 22 0% 4%
Core finance income 1 9 13% 17%
Core finance expense 56 54 - -
Core net finance expense 55 45 - -
On a reported basis, net finance expense was $39 million (2020: $22 million).
This comprised $30 million finance income and $69 million finance expense.
Excluding exceptional items(15), core net finance expense was $55 million
(2020: $45 million). This comprised $1 million finance income and $56 million
finance expense. The increase compared with 2020 in part reflects a drop in
interest income over the course of 2021 due to a reduction in interest rates,
and a slight increase in expenses related to the refinancing of our revolving
credit facility.
We expect core net finance expense to be around $55 million in 2022.
Profit before tax
Reported profit before tax decreased to $544 million (2020: $558 million),
primarily reflecting an increase in the amortisation of intangibles (other
than software), from $42 million to $73 million, due to new product launches.
Excluding the amortisation of intangibles (other than software) and
exceptional items(16), core profit before tax was $578 million (2020: $522
million), up 11%, reflecting the strong performance of our three business
segments.
Tax
The Group incurred a reported tax expense of $124 million (2020: $128 million)
and a reported effective tax rate of 22.8% (2020: 22.9%). Excluding
exceptional items, Group core tax expense was $129 million (2020: $115
million). The core effective tax rate increased slightly to 22.3% (2020:
22.0%), primarily due to a change in the earnings mix.
We expect the Group core effective tax rate to be in the range of 22% to 23%
in 2022.
Profit attributable to shareholders
Profit attributable to shareholders was $421 million (2020: $431 million).
Core profit attributable to shareholders increased by 11% to $450 million
(2020: $408 million).
Earnings per share
2021 2020 Change Constant currency change
Basic earnings per share (cents) 182.3 182.6 0% 4%
Core basic earnings per share (cents) 194.8 172.9 13% 17%
Diluted earnings per share (cents) 180.7 181.1 0% 4%
Core diluted earnings per share (cents) 193.1 171.4 13% 17%
Weighted average number of Ordinary Shares for the purposes of basic earnings 231 236 - -
('m)
Weighted average number of Ordinary Shares for the purposes of diluted 233 238 - -
earnings ('m)
The increase in core earnings per share reflects the strong performance of the
Group and the value for shareholders created by the Group's buy back of 12.8
million ordinary shares in the first half of 2020.
Dividend
The Board is recommending a final dividend of 36 cents per share
(approximately 26 pence per share) (2020: 34 cents per share) bringing the
total dividend for the full year to 54 cents per share (approximately 40 pence
per share) (2020: 50 cents per share). The proposed dividend will be paid on
28 April 2022 to eligible shareholders on the register at the close of
business on 18 March 2022, subject to approval at the Annual General Meeting
on 25 April 2022.
Net cash flow, working capital and net debt
The Group generated strong operating cash flow of $638 million (2020: $464
million). This change primarily reflects the good performance of the Group,
combined with a focussed effort to optimise inventories following COVID-19
related stocking in 2020. The resultant decrease in inventory days drove an
improvement in working capital days, which decreased by 26 days to 238 days.
Capital expenditure was $145 million (2020: $172 million). In the US, $56
million was spent upgrading equipment and adding new technologies for our
Generics and Injectables businesses, including our new compounding facility in
Dayton, New Jersey. In MENA, $66 million was spent on strengthening and
expanding manufacturing capabilities. In Europe, we spent $23 million on
strengthening our capabilities. We expect Group capital expenditure to be in
the range of $160 million to $180 million in 2022.
The Group's total debt decreased to $846 million at 31 December 2021 (31
December 2020: $932 million). This decrease primarily reflects our strong cash
flow generation which enabled a reduction in short-term borrowing, while we
maintained the repayment schedule of long-term loans.
During the year, we upsized, amended and extended our revolving credit
facility (RCF), effective as of January 2022, allowing us the flexibility to
pursue strategic opportunities. The RCF remained undrawn at year end.
The Group's cash balance at 31 December 2021 was $426 million (2020: $327
million).
The Group's net debt (excluding co-development agreements and contingent
liabilities) was $420 million at 31 December 2021 (31 December 2020: $605
million). We continue to have a strong balance sheet, with a net debt to core
EBITDA ratio of 0.6x (31 December 2020: 0.9x).
Today we are also announcing a share buyback programme of up to $300 million
to be executed during 2022. This takes into account the strength of our
balance sheet and low leverage ratio while maintaining the financial
flexibility needed to invest in the business and pursue inorganic growth
opportunities.
Balance sheet
Net assets at 31 December 2021 were $2,467 million (31 December 2020: $2,148
million). Net current assets were $1,078 million (31 December 2020: $894
million).
The Board
The Board of Directors that served during the twelve-month period to 31
December 2021 and their respective responsibilities can be found on the
Leadership team section of www.hikma.com (http://www.hikma.com) .
Cautionary statement
This preliminary announcement has been prepared solely to provide additional
information to the shareholders of Hikma and should not be relied on by any
other party or for any other purpose.
Definitions
We use a number of non-IFRS measures to report and monitor the performance of
our business. Management uses these adjusted numbers internally to measure our
progress and for setting performance targets. We also present these numbers,
alongside our reported results, to external audiences to help them understand
the underlying performance of our business. Our core numbers may be calculated
differently to other companies.
Adjusted measures are not substitutable for IFRS results and should not be
considered superior to results presented in accordance with IFRS.
Core results
Reported results represent the Group's overall performance. However, these
results can include one-off or non-cash items which are excluded when
assessing the underlying performance of the Group. To provide a more
complete picture of the Group's performance to external audiences, we provide,
alongside our reported results, core results, which are a non-IFRS measure.
Our core results exclude the exceptional items and other adjustments set out
in Note 5 of the Group consolidated financial statements.
Group operating profit 2021 2020
$million $million
Core operating profit 632 566
Intangible assets write-down (13) -
Jordan warehouse fire incident - 11
GxA inventory related provisions - (15)
MENA severance and restructuring costs - (3)
Net impairment reversal of product related intangibles 36 62
Intangible assets amortisation other than software (73) (42)
Reported operating profit 582 579
Constant currency
As the majority of our business is conducted in the US, we present our results
in US dollars. For both our Branded and Injectable businesses, a proportion
of their sales are denominated in a currency other than the US dollar. In
order to illustrate the underlying performance of these businesses, we include
information on our results in constant currency.
Constant currency numbers in 2021 represent reported 2021 numbers translated
using 2020 exchange rates, excluding price increases in the business resulting
from the devaluation of the Sudanese pound and excluding the impact from
hyperinflation accounting.
EBITDA
EBITDA is earnings before interest, tax, depreciation, amortisation, assets
write-down and impairment charges/reversals.
EBITDA 2021 2020
$ million $ million
Reported operating profit 582 579
Depreciation, amortisation, assets write-down and impairment charges/reversals 145 91
Reported EBITDA 727 670
Exceptional items:
Jordan warehouse fire incident - (11)
Assets write off - inventory-related provision - 12
MENA severance and restructuring costs - 3
Core EBITDA 727 674
Working capital days
We believe Group working capital days provides a useful measure of the Group's
working capital management and liquidity. 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 12 months Group revenue. Group inventory days
are calculated as Group inventory x 365, divided by 12 months Group cost of
sales. Group payable days are calculated as Group trade payables x 365,
divided by 12 months Group cost of sales.
Group net debt
We believe Group net debt is a useful measure of the strength of the Group's
financing position. Group net debt is calculated as Group total debt less
Group total cash. Group total debt excludes co-development agreements and
contingent liabilities.
Group net debt 31 Dec 2021 31 Dec 2020
$ million $ million
Short-term financial debts (112) (158)
Short-term leases liabilities (9) (10)
Long-term financial debts (651) (692)
Long-term leases liabilities (74) (72)
Total debt (846) (932)
Cash, cash equivalents and restricted cash 426 327
Net debt (420) (605)
Forward looking statements
This announcement contains certain statements which are, or may be deemed to
be, "forward looking statements" which are prospective in nature with respect
to Hikma's expectations and plans, strategy, management objectives, future
developments and performance, costs, revenues and other trend information.
All statements other than statements of historical fact may be forward-looking
statements. Often, but not always, forward-looking statements can be
identified by the use of forward looking words such as "aims", "anticipates",
"believes", "budget", "estimates", "expects", "forecasts", "goals", "intends",
"objectives", "outlook", "plan", "project", "risks", "seek" "scheduled",
"targets" or words or terms of similar substance or the negative thereof, as
well as variations of such words and phrases or statements that certain
actions, events or results "could", "may", "might", "probably", "should",
"will" or "would" be taken, occur or be achieved.
By their nature, forward looking statements are based on current expectations
and projections about future events and are therefore subject to assumptions,
risks and uncertainties that are beyond Hikma's ability to control or estimate
precisely and which could cause actual results or events to differ materially
from those expressed or implied by the forward looking statements. In
particular, these include statements relating to future actions, product
authorisations, future performance or results of current and anticipated
products, sales efforts, expenses, the outcome of contingencies such as legal
proceedings, dividend payments and financial results. Where included, such
statements have been made by or on behalf of Hikma in good faith based upon
the knowledge and information available to the Directors on the date of this
announcement. Accordingly, no assurance can be given that any particular
expectation will be met and Hikma's shareholders are cautioned not to place
undue reliance on the forward-looking statements. Forward looking statements
contained in this announcement regarding past trends or activities should not
be taken as a representation that such trends or activities will continue in
the future.
Other than in accordance with its legal or regulatory obligations (including
under the UK Market Abuse Regulation and the UK Listing Rules and the
Disclosure Guidance and Transparency Rules of the Financial Conduct
Authority), Hikma does not undertake to update the forward looking statements
contained in this announcement to reflect any changes in events, conditions or
circumstances on which any such statement is based or to correct any
inaccuracies which may become apparent in such forward looking statements.
Except as expressly provided in this announcement, no forward looking or other
statements have been reviewed by the auditors of Hikma. Any forward looking
statement above and all subsequent oral or written forward looking statements
attributable to Hikma or any of its members, directors, officers or employees
or any person acting on their behalf are expressly qualified in their entirety
by this cautionary statement. Past share performance cannot be relied on as a
guide to future performance. Nothing in this announcement should be construed
as a profit forecast.
Neither the content of Hikma's website nor any other website accessible by
hyperlinks from Hikma's website are incorporated in, or form part of, this
announcement.
Principal risks and uncertainties
The Group faces risks from a range of sources that could have a material
impact on our financial commitments and ability to trade in the future. The
principal risks are determined via robust assessment considering our risk
context by the Board of Directors with input from executive management. The
principal risks facing the company have not materially changed over the year
and they are set out in the 2021 annual report on pages 54 - 63, which will be
available on 16 March 2022. The Board recognises that certain risk factors
that influence the principal risks are outside of the control of management.
The Board is satisfied that the principal risks are being managed
appropriately and consistently with the target risk appetite. The set of
principal risks should not be considered as an exhaustive list of all the
risks the Group faces.
1 Subject to FTC approval
(2) Constant currency numbers in 2021 represent reported 2021 numbers
translated using 2020 exchange rates, excluding price increases in the
business resulting from the devaluation of the Sudanese pound and excluding
the impact from hyperinflation accounting. In 2021 Lebanon and Sudan were
considered hyperinflationary economies, therefore the spot exchange rate as at
31 December 2021 was used to translate the results of these operations into US
dollars
(3) In June 2020, Hikma purchased 12.8 million ordinary shares from Boehringer
Ingelheim, which are being held in treasury
(4) Core results throughout the document are presented to show the underlying
performance of the Group, excluding the exceptional items and other
adjustments set out in Note 5 of the Group consolidated financial statements.
Core results are a non-IFRS measure and a reconciliation to reported IFRS
measures is provided on page 14
(5) Group net debt is calculated as Group total debt less Group total cash,
including restricted cash. Group net debt is a non-IFRS measure. See page 15
for a reconciliation of Group net debt to reported IFRS figures
(6) Core EBITDA is earnings before interest, tax, depreciation, amortisation,
assets write-down and impairment charges/reversals. EBITDA is a non-IFRS
measure, see page 15 for a reconciliation to reported IFRS results
7 Net debt to core EBITDA is calculated as Group net debt divided by core
EBITDA and is considered a useful measure of the Group's financing decision
(8) Subject to FTC approval
(9) Core results throughout the document are presented to show the underlying
performance of the Group, excluding the exceptional items and other
adjustments set out in Note 5 of the Group consolidated financial statements.
Core results are a non-IFRS measure and a reconciliation to reported IFRS
measures is provided on page 14
1(0) Exceptional items comprised a $60 million impairment reversal of product
related intangibles, a $24 million charge of product related intangibles and a
$13 million intangible assets write-down. Amortisation of intangible assets
(other than software) was $73 million. Refer to Note 5 of the Group
consolidated financial statements for further information
(11) Exceptional items comprised a $10 million impairment of product related
intangibles and a $1 million intangible assets write-down. Amortisation of
intangible assets (other than software) was $33 million. Refer to Note 5 of
the Group consolidated financial statements for further information
(12) Exceptional items comprised a $60 million impairment reversal of product
related intangibles and a $14 million impairment charge of product related
intangibles and a $1 million intangible assets write-down. Amortisation of
intangible assets (other than software) was $30 million. Refer to Note 5 of
the Group consolidated financial statements for further information
(13) Exceptional items comprised a $11 million intangible assets write-down.
Amortisation of intangible assets (other than software) was $10 million. Refer
to Note 5 of the Group consolidated financial statements for further
information
(14) New products submitted, approved and launched by country in 2021
1(5) Exceptional items comprised $29 million non-cash finance income related
to the remeasurement of contingent consideration related to the Generics
business and $13 million non-cash finance expense related to the unwinding and
remeasurement of contingent consideration related to the Generics business
(16) Exceptional items comprised a $60 million impairment reversal of product
related intangibles, a $24 million impairment charge of product related
intangibles, a $13 million intangible assets write-down and $16 million net
finance income due to the remeasurement of contingent consideration.
Amortisation of intangible assets (other than software) was $73 million. Refer
to Note 5 of the Group consolidated financial statements for further
information
Hikma Pharmaceuticals PLC
Consolidated income statement
For the year ended 31 December 2021
2021 2021 2021 Reported 2020 2020 2020 Reported
Core
Exceptional items and other adjustments
results
Core
Exceptional items and other adjustments
results
results
(Note 5)
results
(Note 5)
Note $m $m $m $m $m $m
Revenue 3 2,553 - 2,553 2,341 - 2,341
Cost of sales (1,252) - (1,252) (1,128) (12) (1,140)
Gross profit/(loss) 1,301 - 1,301 1,213 (12) 1,201
Selling, general and administrative expenses (488) (73) (561) (464) (45) (509)
Net impairment loss on financial assets - - - (2) - (2)
Research and development expenses (143) - (143) (137) - (137)
Other operating expenses (40) (37) (77) (47) (7) (54)
Other operating income 2 60 62 3 77 80
Total operating (expenses)/income (669) (50) (719) (647) 25 (622)
Operating profit/(loss) 4 632 (50) 582 566 13 579
Finance income 1 29 30 9 38 47
Finance expense (56) (13) (69) (54) (15) (69)
Gain from investment at fair value through profit and loss (FVTPL) - - - 1 - 1
Results from joint venture 1 - 1 - - -
Profit/(loss) before tax 578 (34) 544 522 36 558
Tax 6 (129) 5 (124) (115) (13) (128)
Profit/(loss) for the year 449 (29) 420 407 23 430
Attributable to:
Non-controlling interests (1) - (1) (1) - (1)
Equity holders of the parent 450 (29) 421 408 23 431
449 (29) 420 407 23 430
Earnings per share (cents) 8
Basic 194.8 182.3 172.9 182.6
Diluted 193.1 180.7 171.4 181.1
Hikma Pharmaceuticals PLC
Consolidated statement of comprehensive income
For the year ended 31 December 2021
2021 2020
Reported results
Reported results
$m $m
Profit for the year 420 430
Other comprehensive income Items that may subsequently be reclassified to the
consolidated income statement, net of tax:
Currency translation and hyperinflation movement (22) 39
Items that will not subsequently be reclassified to the consolidated income
statement, net of tax:
Remeasurement of post-employment benefit obligations (1) (1)
Change in investments at fair value through other comprehensive income 14 2
(FVTOCI)
Total other comprehensive income for the year (9) 40
Total comprehensive income for the year 411 470
Attributable to:
Non-controlling interests 2 2
Equity holders of the parent 409 468
411 470
Hikma Pharmaceuticals PLC
Consolidated balance sheet
At 31 December 2021
2021 2020 (restated)(1)
Note $m $m
Non-current assets
Goodwill 9 285 289
Other intangible assets 9 607 587
Property, plant and equipment 1,072 1,009
Right-of-use assets 74 59
Investments in joint ventures 10 9
Deferred tax assets 183 221
Financial and other non-current assets 47 39
2,278 2,213
Current assets
Inventories 695 757
Income tax receivable 60 36
Trade and other receivables(1) 10 816 700
Collateralised and restricted cash - 4
Cash and cash equivalents 426 323
Other current assets(1) 97 102
2,094 1,922
Total assets 4,372 4,135
Current liabilities
Short-term financial debts 11 112 158
Lease liabilities 9 10
Trade and other payables 12 468 470
Income tax payable 57 72
Other provisions 31 28
Other current liabilities 339 290
1,016 1,028
Net current assets 1,078 894
Non-current liabilities
Long-term financial debts 13 651 692
Lease liabilities 74 72
Deferred tax liabilities 24 31
Other non-current liabilities 140 164
889 959
Total liabilities 1,905 1,987
Net assets 2,467 2,148
Equity
Share capital 42 41
Share premium 282 282
Other reserves (60) (80)
Retained earnings 2,189 1,892
Equity attributable to equity holders of the parent 2,453 2,135
Non-controlling interests 14 13
Total equity 2,467 2,148
1. In 2021, prepayments have been reclassified under other current assets
which were previously classified under trade and other receivables, and hence
at 31 December 2020 numbers have been restated reflecting $56 million
reclassification from trade and other receivables to other current assets. Had
this reclassification been applied at 1 January 2020, these line items would
have been restated by $49 million. (Note 10)
Hikma Pharmaceuticals PLC
Consolidated statement of changes in equity
For the year ended 31 December 2021
Merger and revaluation reserves(1) Translation reserve Total other reserves Retained earnings Share capital Share premium Equity attributable to equity shareholders of the parent Non-controlling interests Total equity
$m
$m
$m
$m
$m
$m
$m
$m
$m
Balance at 1 January 2020 57 (235) (178) 1,972 41 282 2,117 12 2,129
Profit for the year(2) 62 - 62 369 - - 431 (1) 430
Change in fair value of investments at FVTOCI - - - 2 - - 2 - 2
Remeasurement of post-employment benefit obligations - - - (1) - - (1) - (1)
Currency translation and hyperinflation movement - 36 36 - - - 36 3 39
Total comprehensive income for the year 62 36 98 370 - - 468 2 470
Total transactions with owners, recognised directly in equity
Cost of equity-settled employee share scheme - - - 27 - - 27 - 27
Dividends paid (Note 7) - - - (109) - - (109) (1) (110)
Share buyback - - - (368) - - (368) - (368)
Balance at 31 December 2020 and 1 January 2021 119 (199) (80) 1,892 41 282 2,135 13 2,148
Profit for the year(2) 48 - 48 373 - - 421 (1) 420
Change in fair value of investments at FVTOCI - - - 14 - - 14 - 14
Realisation of revaluation reserve (3) - (3) 3 - - - - -
Remeasurement of post-employment benefit obligations - - - (2) - - (2) - (2)
Tax arising on remeasurement of post-employment benefit obligations - - - 1 - - 1 - 1
Currency translation and hyperinflation movement - (25) (25) - - - (25) 3 (22)
Total comprehensive income for the year 45 (25) 20 389 - - 409 2 411
Total transactions with owners, recognised directly in equity
Cost of equity-settled employee share scheme - - - 29 - - 29 - 29
Exercise of employees share scheme - - - (1) 1 - - - -
Dividends paid (Note 7) - - - (120) - - (120) (1) (121)
Balance at 31 December 2021 164 (224) (60) 2,189 42 282 2,453 14 2,467
1. Merger and revaluation reserves mainly relates to Columbus business
acquisition in 2016
2. A net Impairment reversal of $48 million has been allocated from retained
earnings to the merger and revaluation reserves in relation to Columbus
business acquisition intangible assets (2020: $62 million) (Notes 5 and 9)
Hikma Pharmaceuticals PLC
Consolidated cash flow statement
For the year ended 31 December 2021
2021 2020
Note $m $m
Cash flows from operating activities
Cash generated from operations 14 767 525
Income taxes paid (131) (68)
Income taxes received 2 7
Net cash inflow from operating activities 638 464
Cash flow from investing activities
Purchases of property, plant and equipment (145) (172)
Purchase of intangible assets (84) (52)
Proceeds from sale of investment at FVTOCI 5 -
Additions of investments at FVTOCI (3) (5)
Proceeds from investment divestiture 1 2
Contingent consideration paid (17) (60)
Interest income received 2 7
Investment related amounts released from/ (held in) escrow account 3 (3)
Net cash outflow from investing activities (238) (283)
Cash flow from financing activities
Proceeds from issue of long-term financial debts 10 1,543
Repayment of long-term financial debts (45) (1,372)
Proceeds from short-term borrowings 383 430
Repayment of short-term borrowings (431) (367)
Repayment of lease liabilities (31) (14)
Dividends paid 7 (120) (109)
Dividends paid to non-controlling shareholders of subsidiaries (1) (1)
Interest and bank charges paid (50) (39)
Share buyback - (375)
Commitment fees received related to the share buyback - 7
Payment to co-development and earnout payment agreement (2) (1)
Net cash outflow from financing activities (287) (298)
Net increase/(decrease) in cash and cash equivalents 113 (117)
Cash and cash equivalents at beginning of year 323 442
Foreign exchange translation movements (10) (2)
Cash and cash equivalents at end of year 426 323
Hikma Pharmaceuticals PLC
Notes to the consolidated financial statements
1. Accounting policies
General information
Hikma Pharmaceuticals PLC is a public limited liability company incorporated
and domiciled in United Kingdom under the Companies Act 2006.
The Group's principal activities are the development, manufacturing, marketing
and selling of a broad range of generic, branded and in-licensed
pharmaceuticals products in solid, semi-solid, liquid and injectable final
dosage forms.
Basis of preparation
Hikma Pharmaceuticals PLC's consolidated financial statements have been
prepared in accordance with:
(i) UK-adopted International Accounting Standards and with the
requirements of the Companies Act 2006 as applicable to companies reporting
under those standards.
On 31 December 2020, IFRS as adopted by the European Union at that date was
brought into UK law and became UK-adopted International Accounting Standards,
with future changes being subject to endorsement by the UK Endorsement Board.
The Group transitioned to UK-adopted International Accounting Standards in its
consolidated financial statements on 1 January 2021. This change constitutes a
change in accounting framework. However, there is no impact on recognition,
measurement or disclosure in the period reported as a result of the change in
framework
(ii) IFRS as issued by the International Accounting Standards Board (IASB)
The consolidated financial statements have been prepared under the historical
cost convention, except for the revaluation to fair value of certain financial
assets and liabilities.
The accounting policies included in this note have been applied consistently
other than where new policies have been adopted.
The Group's previously published consolidated financial statements were
prepared in accordance with:
(i) IFRS in conformity with the requirements of the Companies Act 2006 and
the applicable legal requirements of the Companies Act 2006. In addition to
complying with IFRS in conformity with the requirements of the Companies Act
2006, 2020 financial statements also comply with IFRS adopted pursuant to
Regulation (EC) No. 1606/2002 as it applies in the European Union
(ii) IFRS as issued by the International Accounting Standards Board (IASB)
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 revised Standards and Interpretations have been issued and are
effective for annual periods beginning on 1 January 2021. The Group has not
early adopted any other standard, interpretation or amendment that has been
issued but is not yet effective.
- Interest Rate Benchmark Reform - Phase 2: Amendments to IFRS 9, IAS 39, IFRS
7, IFRS 4 and IFRS 16
The amendments provide temporary reliefs which address the financial reporting
effects when an interbank offered rate (IBOR) is replaced with an alternative
nearly risk-free interest rate (RFR). The amendments include the following
practical expedient: A practical expedient to require contractual changes, or
changes to cash flows that are directly required by the reform, to be treated
as changes to a floating interest rate, equivalent to a movement in a market
rate of interest.
These amendments had no significant impact on the consolidated financial
statements of the Group. The Group intends to use the practical expedients in
future periods if they become applicable.
- IFRIC agenda decision - Configuration and customisation costs in a Cloud
Computing Arrangement
The March 2021 IFRS Interpretation Committee update included an agenda
decision on configuration and customisation costs in a cloud computing
arrangement involving Software as a Service (SaaS). The agenda decision
included guidance on how entities should account for such configuration and
customisation costs.
The Group has adopted the IFRIC update as a change in accounting policy. The
impact relating to prior year was not material and therefore the application
was not retrospectively applied and was recognised in the current year
consolidated income statement as exceptional item (Notes 5 and 9).
Exceptional items and other adjustments
We use a number of non-IFRS measures to report and monitor the performance of
our business. Management uses these adjusted numbers internally to measure our
progress and for setting performance targets. We also present these numbers,
alongside our reported results, to external audiences to help them understand
the underlying performance of our business. Our adjusted numbers may be
calculated differently to other companies.
Adjusted measures are not substitutable for IFRS numbers and should not be
considered superior to results presented in accordance with IFRS.
Core results
Reported results represent the Group's overall performance. However, these
results can include one-off or non-cash items that mask the underlying
performance of the Group. To provide a more complete picture of the Group's
performance and to improve comparability of our consolidated financial
statements to external audiences, we provide, alongside our reported results,
core results, which are a non-IFRS measure. We represent and discuss our Group
and segmental financials reconciled between reported and core results. This
presentation allows for full visibility and transparency of our financials so
that shareholders are able to clearly assess the performance factors of the
Group.
Our core results exclude the exceptional items and other adjustments set out
in Note 5 in the Notes to the consolidated financial statements.
Exceptional items
Exceptional items represent adjustments for costs and profits which management
believes to be exceptional in nature by virtue of their size or incidence, or
have a distortive effect on current year earnings, such as costs associated
with business combinations, one-off gains and losses on disposal of businesses
assets, reorganisation costs and any exceptional items related to tax such as
significant tax benefit/expense associated with previously unrecognised
deferred tax assets/liabilities.
Other adjustments
These include amortisation, impairment charge/reversal of intangible assets
excluding software and finance income and expense resulting from remeasurement
and unwinding of contingent consideration and co-development earnout payment
agreement financial liabilities.
Intangible assets
An intangible asset is recognised if all the below conditions are met:
- it is identifiable
- it is probable that the expected future economic benefits that are
attributable to the asset will flow to the Group
- the cost of the asset can be measured reliably
The probability of expected future economic benefits is assessed using
reasonable and supportable assumptions that represent management's best
estimate of the set of economic conditions that will exist over the useful
life of the asset. The assets are amortised on a straight-line basis on the
following amortisation rates:
Customer relationships 10%
Product related intangibles 5% to 33%
Trade names 10%
Marketing rights 7% to 33%
Software 10% to 33%
Judgement is used to assess the degree of certainty attached to the flow of
future economic benefits that are attributable to the use of the asset on the
basis of the evidence available at the time of initial recognition, giving
greater weight to external evidence.
Expenditures on research and development activities are charged to the
consolidated income statement, except only when the criteria for recognising
an internally generated intangible asset is met, which is usually when
approval from the relevant regulatory authority is considered probable.
Also, the Group engages with third-party research and development companies to
develop products on its behalf. Substantial payments made to such third
parties to fund research and development efforts are recognised as intangible
assets if the capitalisation criteria for an intangible asset are met, which
typically is when licence fees and certain milestone payments are made, all
other payments are charged to the consolidated income statement.
Principal intangible assets are:
(a) Goodwill: arising in a business combination and is recognised as an asset
at the date that control is acquired (the acquisition date). Goodwill is
measured as the excess of the sum of the consideration transferred, the amount
of any non-controlling interest in the acquiree and the fair value of the
acquirer's previously held equity interest (if any) in the entity over the net
of the acquisition-date fair value of the identifiable assets, liabilities and
acquired contingent liabilities. If, after reassessment, the Group's interest
in the fair value of the acquiree's identifiable net assets exceeds the sum of
the consideration transferred, the amount of any non-controlling interest in
the acquiree and the fair value of the acquirer's previously held equity
interest in the acquiree (if any), the excess is recognised immediately in the
consolidated income statement as a bargain purchase gain.
On disposal of a subsidiary, the attributable amount of goodwill is included
in the determination of any profit or loss on disposal in the consolidated
income statement
(b) Product related intangibles:
(i) Product files and in-licensed products recognised through acquisitions
and partnerships are amortised over their useful economic lives once the asset
is ready for use
(ii) In process product files recognised on acquisition are amortised over
the useful economic life once the asset is ready for use
(c) Purchased software: is amortised over the useful economic life when the
asset is ready for use
Other identified intangibles are:
(d) Customer relationships: represent the value attributed to the long-term
relationships held with existing customers that the Group acquired on business
combinations. Customer relationships are amortised over their useful economic
life
(e) Trade names: are amortised over their useful lives from the date of
acquisition
(f) Marketing rights: are amortised over their useful lives commencing in the
year in which the rights first generate sales
2. Going concern
The Directors believe that the Group is well diversified due to its geographic
spread, product diversity and large customer and supplier base. Taking into
account the Group's current position and its principal risks for a period
longer than 12 months from the date of signing the consolidated financial
statement, a going concern analysis has been prepared using realistic
scenarios applying a severe but plausible downside which shows sufficient
liquidity headroom. Therefore, the Directors believe that the Group and its
subsidiaries are adequately placed to manage its business and financing risks
successfully, despite the current uncertain economic outlook. Having assessed
the principal risks, the Directors considered it appropriate to adopt the
going concern basis of accounting in preparing the consolidated financial
statements.
Financial covenants are suspended while the Group retains its investment grade
status from two rating agencies(1). Nevertheless, the covenants are monitored
and the Group was in compliance on 31 December 2021 and expects to remain in
compliance with those covenants for the year ending in December 2022 even in
the severe but plausible downside scenarios. As of 31 December 2021, the
Group's investment grade rating was affirmed by S&P and Fitch.
1.Rating agencies: means each of Fitch, Moody's and S&P or any of their
affiliates or successors
3. Revenue from contracts with customers
Business and geographical markets
The following table provides an analysis of the Group's reported sales by
segment and geographical market, irrespective of the origin of the
goods/services:
Injectables Generics Branded Others Total
Year ended 31 December 2021 $m $m $m $m $m
United States 691 820 - - 1,511
Middle East and North Africa 180 - 661 6 847
Europe and rest of the world 176 - 8 5 189
United Kingdom 6 - - - 6
1,053 820 669 11 2,553
Injectables Generics Branded Others Total
Year ended 31 December 2020 $m $m $m $m $m
United States 662 744 - - 1,406
Middle East and North Africa 160 - 605 5 770
Europe and rest of the world 149 - 8 2 159
United Kingdom 6 - - - 6
977 744 613 7 2,341
The top selling markets in 2021 are as below:
2021 2020
$m $m
United States 1,511 1,406
Saudi Arabia 218 223
Egypt 127 118
1,856 1,747
In 2021, included in revenue arising from the Generics and Injectables
segments are sales the Group made to two wholesalers in the US accounting for
equal to or greater than 10% of the Group's revenue on an individual basis of
$402 million (16% of Group revenue) and $341 million (13% of Group revenue),
in 2020: $333 million (14% of Group revenue) and $274 million (12% of Group
revenue).
The following table provides contract balances related to revenue:
2021 2020
$m $m
Trade receivables (Note 10) 781 662
Contract assets - 3
Contract liabilities 213 162
Trade receivables are non-interest bearing and typical credit terms in the US
range from 30 to 90 days, in Europe 30 to 120 days, and in MENA 180 to 360
days.
Contract liabilities mainly relate to returns and free goods provisions.
4. Business segments
For management reporting purposes, the Group is organised into three principal
operating divisions - Injectables, Generics and Branded. These divisions are
the basis on which the Group reports its segmental information.
Core 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:
Injectables 2021 2021 2021 Reported 2020 2020 2020 Reported
Core results
Exceptional items and other adjustments
results
Core results
Exceptional items and other adjustments
results
(Note 5)
(Note 5)
$m $m $m $m $m $m
Revenue 1,053 - 1,053 977 - 977
Cost of sales (472) - (472) (414) - (414)
Gross profit 581 - 581 563 - 563
Total operating expenses (186) (44) (230) (186) (23) (209)
Segment result 395 (44) 351 377 (23) 354
Generics 2021 2021 2021 Reported 2020 2020 2020 Reported
Core results
Exceptional items and other adjustments
results
Core results
Exceptional items and other adjustments
results
(Note 5)
(Note 5)
$m $m $m $m $m $m
Revenue 820 - 820 744 - 744
Cost of sales (432) - (432) (403) (12) (415)
Gross profit 388 - 388 341 (12) 329
Total operating expenses (186) 15 (171) (180) 54 (126)
Segment result 202 15 217 161 42 203
Branded 2021 2021 2021 Reported 2020 2020 2020 Reported
Core results
Exceptional items and other adjustments
results
Core results
Exceptional items and other adjustments
results
(Note 5)
(Note 5)
$m $m $m $m $m $m
Revenue 669 - 669 613 - 613
Cost of sales (341) - (341) (306) - (306)
Gross profit 328 - 328 307 - 307
Total operating expenses (203) (21) (224) (181) (6) (187)
Segment result 125 (21) 104 126 (6) 120
Others(1) 2021 2021 2021 Reported 2020 2020 2020 Reported
Core results
Exceptional items and other adjustments
results
Core results
Exceptional items and other adjustments
results
(Note 5)
(Note 5)
$m $m $m $m $m $m
Revenue 11 - 11 7 - 7
Cost of sales (6) - (6) (5) - (5)
Gross profit 5 - 5 2 - 2
Total operating expenses (3) - (3) (2) - (2)
Segment result 2 - 2 - - -
1.Others mainly comprises Arab Medical Containers LLC and International
Pharmaceutical Research Center LLC
Group 2021 2021 2021 Reported 2020 2020 2020 Reported
Core results
Exceptional items and other adjustments
results
Core results
Exceptional items and other adjustments
results
(Note 5)
(Note 5)
$m $m $m $m $m $m
Segment result 724 (50) 674 664 13 677
Unallocated expenses(2) (92) - (92) (98) - (98)
Operating profit/(loss) 632 (50) 582 566 13 579
Finance income 1 29 30 9 38 47
Finance expense (56) (13) (69) (54) (15) (69)
Gain from investment at FVTPL - - - 1 - 1
Results from joint venture 1 - 1 - - -
Profit/(loss) before tax 578 (34) 544 522 36 558
Tax (129) 5 (124) (115) (13) (128)
Profit/(loss) for the year 449 (29) 420 407 23 430
Attributable to:
Non-controlling interests (1) - (1) (1) - (1)
Equity holders of the parent 450 (29) 421 408 23 431
449 (29) 420 407 23 430
2.Unallocated corporate expenses mainly comprise employee costs, third-party
professional fees and IT expenses
The following table provides an analysis of the Group non-current assets(1) by
geographic area:
2021 2020
$m $m
United States 1,083 995
Middle East and North Africa
Jordan 365 356
Others 321 307
686 663
Europe and rest of the world
Portugal 136 137
Others 52 55
188 192
United Kingdom 81 94
2,038 1,944
1.Non-current assets exclude investments in joint ventures, deferred tax
assets, and financial and other non-current assets
5. Exceptional items and other adjustments
Exceptional items and other adjustments are disclosed separately in the
consolidated income statement to assist in the understanding of the Group's
core performance.
Generics Injectables Branded Unallocated Total
2021 $m $m $m $m $m
Exceptional items
Intangible assets write-down Other operating expenses (1) (1) (11) - (13)
Exceptional items (1) (1) (11) - (13)
Other adjustments
Impairment reversal of product related intangibles Other operating income 60 - - - 60
Impairment of product related intangibles Other operating expenses (14) (10) - - (24)
Intangible assets amortisation other than software SG&A (30) (33) (10) - (73)
Remeasurement of contingent consideration Finance income - - - 29 29
Unwinding and remeasurement of contingent consideration and other financial Finance expense - - - (13) (13)
liability
Exceptional items and other adjustments included in profit before tax 15 (44) (21) 16 (34)
Tax effect Tax 5
Impact on profit for the year (29)
Exceptional items have been recognised in accordance with our accounting
policy outlines in Note 1, the details are presented below:
Exceptional items
- Intangible assets write-down: $13 million write-down of software
representing prior year impact of the application of the IFRIC April 2021
agenda decisions regarding cloud computing arrangement customisation and
configuration costs treatment. The Group has adopted the IFRIC update as a
change in accounting policy. The impact relating to prior year was not
material and therefore the application was not retrospectively applied and was
recognised in the current year consolidated income statement as exceptional
item (Note 1)
Other adjustments
- Impairment reversal of product related intangibles: $60 million impairment
reversal mainly related to generic Advair Diskus® intangible asset as a
result of launching the product following FDA approval in April 2021 following
an amendment submitted to its Abbreviated New Drug Application in January 2021
(Note 9)
- Impairment of product related intangibles: $24 million impairment charge
of different product related intangibles due to a decline in performance and
forecasted profitability (Note 9)
- Intangible assets amortisation other than software of $73 million
- Remeasurement of contingent consideration finance income of $29 million
represents the income resulting from the valuation of the liabilities
associated with the future contingent payments in respect of contingent
consideration recognised through business combinations
- Unwinding and remeasurement of contingent consideration and other
financial liability finance expense of $13 million represents the expense
resulting from the unwinding and the valuation of the liabilities associated
with the future contingent payments in respect of contingent consideration
recognised through business combinations and the financial liability in
relation to the co-development earnout payment agreement
In the previous year, exceptional items and other adjustments were related to
the following:
Generics Injectables Branded Unallocated Total
2020 $m $m $m $m $m
Exceptional Items
Jordan warehouse fire incident Other operating income 4 - 7 - 11
MENA severance and restructuring costs SG&A - - (3) - (3)
Assets write off - PPE Impairment Other operating expenses (3) - - - (3)
Assets write off - Inventory Related Provision Cost of sales (12) - - - (12)
Exceptional items (11) - 4 - (7)
Other adjustments
Impairment of product related intangibles Other operating expenses (4) - - - (4)
Impairment reversal of product related intangibles Other operating income 66 - - - 66
Intangible assets amortisation other than software SG&A (9) (23) (10) - (42)
Remeasurement of contingent consideration Finance income - - - 38 38
Unwinding and remeasurement of contingent consideration and other financial Finance expense - - - (15) (15)
liability
Exceptional items and other adjustments including in profit before tax 42 (23) (6) 23 36
Tax expenses associated with previously unrecognised deferred tax assets Tax (3)
Tax effect Tax (10)
Impact on profit for the year 23
Exceptional items
- Jordan warehouse fire incident: In 2020, Hikma recognised $11 million for
insurance compensation related to a fire incident which took place in 2019 at
one of Hikma's Jordan facilities
- MENA severance and restructuring costs: of $3 million related to one-off
organisational restructuring in MENA that started in 2019 and finished in
2020
- Assets write off: In December 2020, Hikma submitted to the FDA a Prior
Approval Supplement (PAS) relating to generic Advair Diskus®. The amendment
reflected enhanced packaging controls to meet new industry standards adopted
since the initial submission of its ANDA application. As a result, the launch
has been temporarily paused and inventory amounting to $12 million was
expected to expire before launch and has been written off. In addition, $3
million of property, plant and equipment was written off
- Tax expense associated with previously unrecognised deferred tax assets: A
prior year adjustment to the tax expense associated with previously
unrecognised deferred tax assets of $3 million arose as a tax return to
provision adjustment
Other adjustments
- Impairment reversal of product related intangibles: $66 million impairment
reversal in respect of specific product related intangibles in the Generics
segment which reflected a better than expected performance of certain marketed
products acquired through business combination (Note 9)
- Impairment charge of product related intangibles of $4 million
- Intangible assets amortisation other than software of $42 million
- Remeasurement of contingent consideration finance income of $ 38 million
represents the income resulting from the valuation of the liabilities
associated with the future contingent payments in respect of contingent
consideration recognised through business combinations
- Unwinding and remeasurement of contingent consideration and other
financial liability finance expense of $15 million represents the expense
resulting from the unwinding and the valuation of the liabilities associated
with the future contingent payments in respect of contingent consideration
recognised through business combinations and the financial liability in
relation to the co-development earnout payment agreement
6. Tax
2021 2021 2021 Reported results 2020 2020 2020 Reported results
Core results
Exceptional items and other adjustments
Core results
Exceptional items and other adjustments
(Note 5)
(Note 5)
$m $m $m $m $m $m
Current tax:
Foreign tax 114 (7) 107 99 (2) 97
Adjustment to prior year (13) - (13) 1 3 2
Deferred tax
Current year 20 2 22 19 12 31
Adjustment to prior year 8 - 8 (2) - (2)
129 (5) 124 115 13 128
UK corporation tax is calculated at 19.0% (2020: 19.0%) of the estimated
assessable profit made in the UK for the year.
The Group incurred a tax expense of $124 million (2020: $128 million). The
effective tax charge rate is 22.8% (2020: 22.9%). The reported effective tax
rate is higher than the statutory rate primarily due to the earnings mix.
Taxation for all 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:
2021 2020
$m $m
Profit before tax 544 558
Tax at the UK corporation tax rate of 19% (2020: 19.00%) 104 106
Profits taxed at different rates 7 7
Permanent differences:
- Non-deductible expenditure 5 7
- Other permanent differences 2 -
- Research and development benefit (6) (3)
State and local taxes 7 8
Temporary differences:
- Rate change tax losses and other deductible temporary differences for which 5 6
no benefit is recognised
- Exceptional tax charge associated with previously unrecognised tax losses - 3
(Note 5)
Change in provision for uncertain tax positions 2 (8)
Unremitted earnings 3 4
Prior year adjustments (5) (2)
Tax expense for the year 124 128
Profits taxed at different tax rates relates to profits arising in overseas
jurisdictions where the tax rate differs from the UK statutory rate. Permanent
differences relate to items which are non-taxable or for which no tax relief
is ever likely to be due. The major items are expenses and income disallowed
where they are covered by statutory exemptions, foreign exchange differences
in some territories and statutory reliefs such as research and development.
Rate change tax losses and other deductible temporary differences for which no
benefit is recognised includes items for which it is not possible to book
deferred tax and comprise mainly unrecognised tax losses.
The change in provision for uncertain tax positions relates to the provisions
the Group holds in the event a revenue authority successfully takes an adverse
view of the positions adopted by the Group in 2021 and primarily relates to
transfer pricing adjustment. As at the consolidated balance sheet date, the
Group held an aggregate provision in the sum of $44 million (2020: $43
million) for uncertain tax positions. The Group released $nil in 2021 (2020:
$8 million) due to the statute of limitations and released $7 million (2020:
$4 million) following settlements with no final tax adjustments required by
the relevant tax authorities. This was offset by new provisions and updates of
$9 million booked in 2021 (2020: $4 million). The currency exchange
differences for the year is a $1 million reduction to the aggregate provision.
In 2022, up to $4 million could be released due to the statute of limitation
and settlements. If all areas of uncertainty were audited and all areas
resulted in an adverse outcome, management does not believe any material
additional tax would be payable beyond what is provided.
Prior year adjustments include differences between the tax liability recorded
in the tax returns submitted for previous years and the estimated tax
provision reported in a prior period's consolidated financial statements. This
category also includes adjustments to the tax returns (favourable) against
which an adverse uncertain tax position has been booked and included under
"change in provision for uncertain tax positions" above.
Publication of tax strategy
In line with the UK requirement for large UK businesses to publish their tax
strategy, the Group's tax strategy has been made available on the Group's
website.
7.
Dividends
Paid in 2021 Paid in
2020
$m $m
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 December 2020 of 34.0 cents (31 December 78 72
2019: 30.0 cents) per share
Interim dividend during the year ended 31 December 2021 of 18.0 cents (31 42 37
December 2020: 16.0 cents) per share
120 109
The proposed final dividend for the year ended 31 December 2021 is 36.0 cents
(2020: 34.0 cents).
The proposed final dividend is subject to approval by shareholders at the
Annual General Meeting on 25 April 2022 and has not been included as a
liability in these consolidated financial statements. Based on the number of
shares in free issue at 31 December 2021 (231,498,055), the unrecognised
liability is $83 million.
8. Earnings per share (EPS)
Basic earnings per share is calculated by dividing the profit attributable to
equity holders of the parent by the weighted average number of Ordinary
Shares. Diluted EPS is calculated by dividing the profit attributable to
ordinary equity holders by the weighted average number of the Ordinary Shares
outstanding during the year plus the weighted average number of Ordinary
Shares that would be issued on conversion of all dilutive potentially 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.
2021 2021 2021 2020 2020 2020
Core results
Exceptional items and other adjustments
Reported
Core results
Exceptional items and other adjustments
Reported
(Note 5)
results
(Note 5)
results
$m $m $m $m $m $m
Earnings for the purposes of basic and diluted EPS being net profit 450 (29) 421 408 23 431
attributable to equity holders of the parent
Basic earnings per share has been calculated by dividing the profit
attributable to shareholders by the weighted average number of shares in issue
during the year after deducting Treasury shares and shares held by the
Employee Benefit Trust (EBT). Treasury shares have no right to receive
dividends and the trustees have waived their rights to dividends on the shares
held by the EBT.
The numbers of shares used in calculating basic and diluted earnings per share
are reconciled below:
2021 2020
Number Number
Number of shares m m
Weighted average number of Ordinary Shares for the purposes of basic EPS¹ 231 236
Effect of dilutive potentially Ordinary Shares:
Share-based awards 2 2
Weighted average number of Ordinary Shares for the purposes of diluted EPS 233 238
1.Weighted average number of ordinary shares has been calculated by the
weighted average number of shares in issue during the year after deducting
Treasury shares and shares held by the EBT
2021 2021 2020 2020
Core
Core
Reported
Reported
EPS
EPS
EPS EPS
Cents Cents Cents Cents
Basic 194.8 182.3 172.9 182.6
Diluted 193.1 180.7 171.4 181.1
9. Goodwill and other intangible assets
The changes in the carrying value of goodwill and other intangible assets for
the years ended 31 December 2021 and 31 December 2020 are as follows:
Goodwill Product-related intangibles Software Other identified intangibles Total
$m $m $m $m $m
Cost
Balance at 1 January 2020 690 1,033 147 184 2,054
Additions - 8 12 16 36
Disposals - - (14) - (14)
Translation adjustments 7 - - 5 12
Balance at 1 January 2021 697 1,041 145 205 2,088
Write-down - - (14) - (14)
Additions - 14 11 58 83
Reclassification - 3 - (3) -
Translation adjustments (4) (2) - (3) (9)
Balance at 31 December 2021 693 1,056 142 257 2,148
Accumulated amortisation and impairment
Balance at 1 January 2020 (408) (660) (75) (77) (1,220)
Charge for the year - (29) (10) (14) (53)
Disposals - - 14 - 14
Impairment reversal - 66 - - 66
Impairment charge - (5) (10) - (15)
Translation adjustments - (1) - (3) (4)
Balance at 1 January 2021 (408) (629) (81) (94) (1,212)
Write-down - - 1 - 1
Charge for the year - (59) (11) (14) (84)
Impairment reversal - 60 - - 60
Impairment charge - (23) - (1) (24)
Translation adjustments - 1 - 2 3
Balance at 31 December 2021 (408) (650) (91) (107) (1,256)
Carrying amount
At 31 December 2021 285 406 51 150 892
At 31 December 2020 289 412 64 111 876
Of the total intangible assets other than goodwill, $132 million (2020: $252
million) are under development and not yet subject to amortisation.
Goodwill
Goodwill acquired in a business combination is allocated at acquisition to the
cash generating units (CGUs) that are expected to benefit from that business
combination. The carrying amount of goodwill has been allocated as follows:
As at 31 December
2021 2020
$m $m
Branded 170 173
Injectables 115 116
Total 285 289
In accordance with the Group policy, goodwill is tested annually for
impairment during the fourth quarter or more frequently if there are
indicators that goodwill may be impaired.
Branded, Injectables and Generics CGUs
Details related to the discounted cash flow models used in the impairment
tests of the Branded, Injectables and Generics CGUs are as follows:
Valuation basis VIU
Key assumptions Sales growth rates, informed by pricing and volume assumptions
Profit margins and profit margin growth rates for marketed and pipeline
products
Expected launch dates for pipeline products
Terminal growth rates
Discount rates
Determination of assumptions Growth rates are internal forecasts based on both internal and external market
information, informed by historical experience and management's best estimates
of the future
Margins reflect past experience, adjusted for expected changes in the future
Establishing the launch date and probability of a successful product approval
for pipeline products
Terminal growth rates are based on the Group's experience in its markets
Discount rates for each CGU are derived from specific regions/countries
Period of specific projected cash flows 5 years, to which a terminal growth rate is then applied
Terminal growth rate and discount rate Terminal growth rate (perpetuity) Pre-tax discount rate
2021 2020 2021 2020
Branded 2.4% 2.4% 15.4% 16.6%
Injectables 2.1% 2.1% 10.2% 11.1%
Generics 2.3% 2.3% 9.9% 12.7%
The Group performed its annual goodwill and CGU impairment test for the
Branded, Injectables and Generics. The Group's model is a VIU model based on
the discounted value of the best estimates derived from the key assumptions to
arrive at the recoverable value. This value is then compared to the carrying
value of the CGU to determine whether an impairment is required. In addition,
the Group models sensitivities on the VIU amounts calculated to determine
whether reasonable changes in key assumptions could lead to a potential
impairment. If such reasonable changes would result in an impairment, then in
accordance with IAS36 these are disclosed below.
For the Branded, Injectables and Generics CGUs the Group has determined that
sufficient headroom(1) still exists under reasonable changes in key
assumptions. Specifically, an evaluation of the CGUs was made assuming an
increase of two percentage points in the discount rate, or a 10% decline in
the projected cash flows, or a 5% decline in the projected cash flows in the
terminal year or reducing the terminal growth rate by two percentage points
and in all cases sufficient headroom exists.
Climate-related matters: The Group monitors the development of climate related
risks. At the current time, climate change is not expected to have a material
impact on the consolidated financial statements. The Group conducted a
sensitivity for the potential impact of climate change, specifically assuming
disruption through extreme weather events, such scenario had minimal impact on
the recoverable values of all CGUs.
1.Headroom is defined as the excess of the recoverable value, over the
carrying value of a CGU
Generic Advair Diskus® CGU
The Group evaluated generic Advair Diskus® as a separate CGU, mainly due to
its distinct assets and liabilities and its ability to generate largely
independent cash flows.
As per the Group policy, the launching of generic Advair Diskus® following
FDA approval in April 2021 of an amendment submitted to its Abbreviated New
Drug Application in January 2021 was considered as an indicator for an
impairment reversal assessment. As a result, the Group evaluated the generic
Advair Diskus® CGU recoverable amount based on fair value less cost to sell
(FVLCS) model, being the higher value compared to VIU.
The evaluation resulted in a reversal of impairment of $46 million bringing
the revised carrying value to $160 million. This valuation methodology uses
significant inputs which are not based on observable market data, therefore
this valuation technique is classified as a level 3 valuation. Details
relating to the discounted cash flow model used for the generic Advair
Diskus® impairment test are as follows:
Valuation basis FVLCS
Key assumptions Sales growth rates, informed by pricing and volume assumptions
Profit margins and profit margin growth rates
Useful life
Discount rates
Determination of assumptions Probability weighted average of different possibilities on sales growth rates,
informed by conversion rates from the branded products and competitor entries
Margins reflect past experience, adjusted for expected changes in the future
Useful life reflects management best estimate of the product's expected
economic benefit
Discount rate is derived from the specific region/country in which the CGU
operates
Period of specific projected cash flows 5 years
Useful life 15 years
Post-tax discount rate 8%
The Group performed sensitivity analysis over the valuation of the generic
Advair Diskus® CGU. The sensitivity analysis assumed an increase of two
percentage points in the discount rate or a 10% decline in the projected cash
flows. Applying those sensitivities would result in an impairment charge
against the generic Advair Diskus® CGU of approximately $13 million and $17
million, respectively.
Product-related intangible assets
In-Process Research and Development (IPR&D)
IPR&D consists of pipeline products of $6 million mainly related to
Generics CGU of $5 million with immaterial amounts allocated to the Branded
and Injectables CGUs. At 31 December 2020, IPR&D balance was $170 million
mainly related to generic Advair Diskus® of $138 million which was launched
during the year and transferred to product rights. These intangibles are not
in use and accordingly, no amortisation has been charged against them. The
Group performs an impairment review of IPR&D assets annually. The result
of this test was an impairment charge of $9 million (2020: $4 million)
Product rights
Product rights consists of marketed products of $400 million (2020: $242
million) mainly related to generic Advair Diskus®.
Whenever impairment indicators are identified for definite life intangible
assets, Hikma reconsiders the asset's estimated economic benefit, calculates
the value of the individual assets or asset group's cash flows and compares
such value against the individual asset's or asset group's carrying amount. If
the carrying amount is greater, the Group records an impairment loss for the
excess of book value over the valuation which is based on the discounted cash
flows by applying an appropriate discount rate that reflects the risk factors
associated with the cash flows and the CGUs under which these products sit.
Furthermore, if there is an indication that previously recognised impairment
losses no longer exist or have decreased, the Group estimates the assets'
recoverable amounts. A previously recognised impairment loss is reversed only
if there has been a sustained and discrete change in the assumptions and
indicators used to determine the asset's recoverable amount since the last
impairment loss was recognised. The reversal is limited so that the carrying
amount of the asset does not exceed its recoverable amount, nor exceed the
carrying amount that would have been determined, net of depreciation and
amortisation, had no impairment loss been recognised for the asset in prior
years. As at 31 December 2021, the result of this testing was an impairment
charge of $14 million (2020: $1 million) related to different products due to
declines in performance and forecasted profitability, and an impairment
reversal of $60 million (2020: $66 million) comprising $46 million related to
the generic Advair Diskus® intangible asset and $14 million for other
products related to the Generics CGU due to improved performance.
The Group performed sensitivity analysis over the valuation of the generic
Advair Diskus® intangible asset. The sensitivity analysis assumed an increase
of two percentage points in the discount rate or a 10% decline in the
projected cash flows, applying those sensitivities would result in an
impairment charge against the generic Advair Diskus® intangible asset of
approximately $11 million and $16 million, respectively.
Software
Software intangibles mainly represent the Enterprise Resource Planning
solutions that are being implemented in different operations across the Group
in addition to other software applications. The software has an average
estimated useful life that varies from three to ten years.
In 2021, there was no impairment of software (2020: $10 million).
In 2021, the Group recorded a $13 million write-down of software previously
capitalised as a result of application of the IFRIC April 2021 agenda
decisions regarding cloud computing arrangement customisation and
configuration costs treatment.
Other identified intangibles
Other identified intangibles comprise customer relationships, trade names and
marketing rights of $150 million (2020: $111 million). The increase during the
year represent payments made to third parties in relation to marketing rights
and licensing agreements. Following a review of impairment indicators for
other identified intangibles as at 31 December 2021, there was an impairment
charge of $1 million (2020: $nil).
Customer relationships
Customer relationships represent the value attributed to existing direct
customers that the Group acquired on the acquisition of subsidiaries. The
customer relationships have an average estimated useful life of 15 years.
Trade names
Trade names were mainly recognised on the acquisition of Hikma Germany GmbH
(Germany) with estimated useful lives of ten years.
Marketing rights
Marketing rights are amortised over their useful lives commencing in the year
in which the rights are ready for use with estimated useful lives varying from
two to ten years.
10. Trade and other receivables
As at 31 December
2021 2020 (restated)(1)
$m $m
Gross trade receivables 1,107 973
Chargebacks and other allowances (275) (256)
Related allowance for expected credit loss (51) (55)
Net trade receivables 781 662
VAT and sales tax recoverable 32 35
Other receivables 3 3
Net trade and other receivables(1) 816 700
1. In 2021, prepayments have been reclassified under other current assets
which were previously classified under trade and other receivables, and hence
at 31 December 2020 numbers have been restated reflecting $56 million
reclassification from trade and other receivables to other current assets. Had
this reclassification been applied at 1 January 2020, these line items would
have been restated by $49 million
The fair value of receivables is estimated to be not significantly different
from the respective carrying amounts.
Trade receivables are stated net of provisions for chargebacks and expected
credit loss allowance as follows:
As at 31 December 2020 Additions, net Utilisation Translation adjustments As at 31 December 2021
$m $m $m $m $m
Chargebacks and other allowances 256 2,160 (2,141) - 275
Expected credit loss allowance 55 - (3) (1) 51
311 2,160 (2,144) (1) 326
( )
As at 31 December 2019 Additions, net Utilisation Translation adjustments As at 31 December 2020
$m $m $m $m $m
Chargebacks and other allowances 280 1,865 (1,889) - 256
Expected credit loss allowance 55 2 (1) (1) 55
335 1,867 (1,890) (1) 311
( )
At 31 December 2021, the provision balance relating to chargebacks was $201
million (2020: $184 million) within what management believes is a reasonable
range for the provision of $197 million to $205 million. The key inputs and
assumptions included in calculating this provision are estimations of 'in
channel' inventory at the wholesalers (including processing lag) of 40 days
(2020: 40 days) and the estimated chargeback rates as informed by average
historical chargeback credits adjusted for expected chargeback levels for new
products and estimated future sales trends. Based on the conditions existing
at the balance sheet date an increase/decrease in the estimate of in channel
inventory by 1 day increases/decreases the provision by $5 million (2020:
$5million) and if the overall chargeback rate of 55% (2020: 55%)
increases/decreases by one percentage point the provision would
increase/decrease by $4 million (2020: $3 million).
At 31 December 2021 the provision balance relating to customer rebates was $55
million (2020: $57 million) within what management believes is a reasonable
range for the provision of $54 million to $56 million. The key inputs and
assumptions included in calculating this provision are historical
relationships of rebates and payments to revenue, past payment experience,
estimate of 'in channel' inventory at the wholesalers and estimated future
trends. Based on the conditions existing at the balance sheet date, a ten
basis point increase/decrease in the rebates rate of 6.5% (2020: 7.8%) would
increase/decrease this provision by approximately $1 million (2020: $1
million).
11. Short-term financial debts
As at 31 December
2021 2020
$m $m
Bank overdrafts 3 3
Import and export financing 58 67
Short-term loans 3 47
Current portion of long-term loans (Note 13) 48 41
112 158
2021 2020
% %
The weighted average interest rates incurred are as follows:
Bank overdrafts 3.21 4.25
Bank loans (including the non-current bank loans) 2.83 3.04
Eurobond(1) 3.58 4.17
Import and export financing(2) 6.39 5.70
1. The Eurobond effective interest rate includes unwinding of discount amount
and upfront fees
2. Import and export financing represents short-term financing for the
ordinary trading activities of the Group
12. Trade and other payables
As at 31 December
2021 2020
$m $m
Trade payables 262 279
Accrued expenses 194 175
Other payables 12 16
468 470
The fair value of payables is estimated to be not significantly different from
the respective carrying amounts.
13.Long-term financial debts
As at 31 December
2021 2020
$m $m
Long-term loans 207 242
Long-term borrowings (Eurobond) 492 491
Less: current portion of long-term loans (Note 11) (48) (41)
Long-term financial loans 651 692
Breakdown by maturity:
Within one year 48 41
In the second year 44 48
In the third year 37 44
In the fourth year 524 36
In the fifth year 23 522
In the sixth year 22 21
Thereafter 1 21
699 733
Breakdown by currency:
US dollar 620 642
Euro 44 54
Jordanian dinar 10 13
Algerian dinar 13 14
Saudi riyal 9 9
Moroccan dirham 3 -
Tunisian dinar - 1
699 733
The loans are held at amortised cost.
Long-term loans amounting to $0.5 million (31 December 2020: $1 million) are
secured on certain property, plant and equipment.
Major arrangements entered into by the Group were:
a) A syndicated revolving credit facility of $1,175 million was entered into
on 27 October 2015. From the $1,175 million, $175 million matured on 24
December 2019, $130 million matured on January 2021 and the remaining $870
million matures on 24 December 2023. At 31 December 2021 the facility has an
outstanding balance of $nil (2020: $nil) and a $870 million unused available
limit (2020: $1,000 million). On 29 December 2021 the facility agreement has
been increased to $1,150 million available for 5 years till Jan 2027 effective
from 4 January 2022 with an extension options for additional 2 years. The
facility can be used for general corporate purposes
b) A ten-year $150 million loan from the International Finance Corporation was
entered into on 21 December 2017. There was full utilisation of the loan since
April 2020. Quarterly equal repayments of the long-term loan have commenced on
15 March 2021. The loan was used for general corporate purposes. The facility
matures on 15 December 2027
c) Hikma issued a $500 million (carrying value at 31 December 2021 of $492
million, and fair value at 31 December 2021 of $515 million) 3.25%, five-year
Eurobond on 9 July 2020 with a rating of (BBB-/Ba1) which is due in July 2025.
The proceeds of the issuance were $494 million which were used for general
corporate purposes
d) An eight-year $200 million loan facility from the International Finance
Corporation and Managed Co-lending Portfolio program was entered into on 26
October 2020. There was no utilisation of the loan as of December 2021. The
facility matures on 15 September 2028 and can be used for general corporate
purposes
14. Cash generated from operating activities
2021 2020
$m $m
Profit before tax 544 558
Adjustments for:
Depreciation, amortisation, impairment charges/reversals and
write-down of:
Property, plant and equipment 72 77
Intangible assets 61 2
Right of Use of Assets 12 12
Gain from investment at FVTPL - (1)
Loss on disposal/damage of property, plant and equipment 1 2
Movement in provisions 2 4
Cost of equity-settled employee share scheme 29 27
Finance income (30) (47)
Interest and bank charges 69 69
Results from joint venture 1 -
Foreign exchange loss and net monetary hyperinflation impact 36 30
Changes in working capital:
Change in trade and other receivables (166) (47)
Change in other current assets 27 (14)
Change in inventories 38 (180)
Change in trade and other payables 14 6
Change in other current liabilities 62 41
Change in other non-current liabilities (5) (14)
Cash flow from operating activities 767 525
15. Contingent liabilities
Guarantees and letters of credit
A contingent liability existed at the balance sheet date in respect of
external guarantees and letters of credit totalling $45 million (31 December
2020: $41 million) arising in the normal course of business. No provision for
these liabilities has been made in these consolidated financial statements.
A contingent liability existed at the balance sheet date for a standby letter
of credit totalling $10 million (2020: $8 million) for a potential stamp duty
obligation that may arise for repayment of a loan by intercompany guarantors.
It's not probable that the repayment will be made by the intercompany
guarantors.
Legal Proceedings
The Group is involved in a number of legal proceedings in the ordinary course
of its business, including actual or threatened litigation and actual or
potential government investigations relating to employment matters, product
liability, commercial disputes, pricing, sales and marketing practices,
infringement of IP rights, the validity of certain patents and competition
laws.
Most of the claims involve highly complex issues. Often these issues are
subject to substantial uncertainties and, therefore, the probability of a
loss, if any, being sustained and/or an estimate of the amount of any loss is
difficult to ascertain. It is the Group's policy to accrue for amounts related
to these legal matters if it is probable that a liability has been incurred
and an amount is reasonably estimable.
- In 2018, the Group received a civil investigative demand from the US
Department of Justice requesting information related to products, pricing and
related communications. In 2017, the Group received a subpoena from a US state
attorney general and a subpoena from the US Department of Justice. Hikma
denies having engaged in any conduct that would give rise to liability with
respect to these demands but is cooperating with all such demands. At this
point, management does not believe sufficient evidence exists to make any
provision for this
- Starting in 2016, several complaints have been filed in the United States
on behalf of putative classes of direct and indirect purchasers of generic
drug products, as well as several individual direct purchasers opt-out
plaintiffs (including two products). These complaints, which allege that the
defendants engaged in conspiracies to fix, increase, maintain and/or stabilise
the prices of the generic drug products named, have been brought against Hikma
and various other defendants. The plaintiffs generally seek damages and
injunctive relief under federal antitrust law and damages under various state
laws. Hikma denies having engaged in conduct that would give rise to liability
with respect to these civil suits and is vigorously pursuing defense of these
cases. At this point, management does not believe sufficient evidence exists
to make any provision for this
- Starting in June 2020, several complaints have been filed in the United
States on behalf of putative classes of direct and indirect purchasers of
Xyrem® against Hikma and other defendants. These complaints allege that Jazz
Pharmaceuticals PLC and its subsidiaries entered into unlawful reverse payment
agreements with each of the defendants, including Hikma, in settling patent
infringement litigation over Xyrem®. The plaintiffs in these lawsuits seek
treble damages and a permanent injunction. Hikma denies having engaged in
conduct that would give rise to liability with respect to these lawsuits and
is vigorously pursuing defence of these cases. At this point, management does
not believe sufficient evidence exists to make any provision for this
- Numerous complaints have been filed with respect to Hikma's sales, and
distribution, or manufacture of opioid products. Those complaints now total
approximately 682 in number. These lawsuits have been filed against
distributors, branded pharmaceuticals manufacturers, pharmacies, hospitals,
generic pharmaceuticals manufacturers, individuals, and other defendants by a
number of cities, counties, states, other governmental agencies and private
plaintiffs in both state, and federal, and Canadian provincial courts. Most of
the federal cases have been consolidated into a multidistrict litigation in
the Northern District of Ohio. These cases assert in general that the
defendants allegedly engaged in improper marketing and distribution of opioids
and that defendants failed to develop and implement systems sufficient to
identify suspicious orders of opioid products and prevent the abuse and
diversion of such products. Plaintiffs seek a variety of remedies, including
restitution, civil penalties, disgorgement of profits, treble damages,
attorneys' fees and injunctive relief. Hikma denies having engaged in conduct
that would give rise to liability with respect to these civil suits and is
vigorously pursuing defense of these cases. At this point, management does not
believe sufficient evidence exists to make any provision for this
- In November 2020, Amarin Pharmaceuticals filed a patent infringement
lawsuit against Hikma in the United States District Court for the District of
Delaware (No. 20-cv-1630) alleging that Hikma's sales and distribution of its
generic icosapent ethyl product infringes three Amarin patents that describe
certain methods of using icosapent ethyl. Amarin sought an injunction barring
Hikma from selling its generic product as well as unspecified damages. Hikma's
product is not approved for the patented methods but rather is approved only
for a different indication not covered by any valid patents. In January 2022
the court dismissed the lawsuit against Hikma, and as of this writing Amarin
has not sought to appeal the court's dismissal. Hikma denies the allegations
and will vigorously defend against them if necessary. Management does not
believe sufficient evidence exists to make any provision for these issues
Tax
In April 2019, the European Commission released its decision that certain tax
exemptions offered by the UK authorities could constitute State Aid and where
this is the case, the relevant tax will need to be paid to the UK tax
authorities. The UK Government has subsequently appealed against this
decision. In common with other UK headquartered international companies whose
arrangements were in line with current UK CFC legislation, Hikma could have
been affected by the outcome of this decision and had estimated the maximum
potential liability to be approximately $2.4 million.
In 2021, formal letters of confirmations were received from HMRC that
confirmed that Hikma is not a beneficiary of State Aid in accordance with the
European Commission's decision and the UK's Controlled Foreign Company
legislation. Following HMRC's confirmation, Hikma no longer requires a
contingent liability in this regard.
16. Subsequent Events
Teligent Inc. acquisition
On 17 January 2022, Hikma announced that it has agreed to acquire the Canadian
assets of Teligent Inc. (Teligent). The acquisition marks Hikma's expansion
into Canada and includes a portfolio of 25 sterile injectable products, three
in-licenced ophthalmic products and a pipeline of seven additional products,
four of which are approved by Health Canada.
The transaction was completed on 2 February 2022 and Hikma paid a cash
consideration of $46 million. Due to the proximity of the completion of the
transaction to the date of issuance of the consolidated financial statements,
the initial valuation for the business combination and net assets acquired is
in progress. It is expected that most of the consideration paid is
attributable to product related intangible assets and around $2 million is
attributable to working capital.
Share buyback
On 24 February 2022, Hikma announced a share buyback programme of up to $300
million to be executed during 2022. The buyback has been sized to maintain
balance sheet efficiency whilst leaving significant headroom for continued
investment opportunities. The Buyback reflects the Group's strong cash
generation, balance sheet strength and the Board's confidence in the future
growth prospects of the business. It is worth noting that since 31 December
2021, the Company has received intercompany dividends which increased the
retained earnings balance available for distribution after year-end.
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