REG - Hikma Pharmaceutical - Final Results
23/02/2023 07:00
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RNS Number : 7720Q Hikma Pharmaceuticals Plc 23 February 2023
Hikma delivers a resilient underlying performance in 2022
Good performance in Injectables and Branded partially offsets competitive
pressures in Generics. All three businesses set to grow in 2023
London, 23 February 2023 - Hikma Pharmaceuticals PLC ('Hikma' or 'Group'), the
multinational pharmaceutical company, today reports its preliminary audited
results for the year ended 31 December 2022.
Said Darwazah, Executive Chairman and Chief Executive Officer of Hikma,
said:
"Hikma's diversified business model has enabled our core underlying business
to deliver a resilient performance in 2022.
Our Injectables and Branded businesses performed well, helping to partially
offset the decline in Generics. In Injectables, we have leveraged our
best-in-class manufacturing capabilities, flexibility and efficiency to serve
our customers, while investing in R&D to strengthen an increasingly
differentiated pipeline of products. In Branded, we have again grown market
share, focusing on chronic disease areas, further cementing our position as
one of the leading pharmaceutical companies in the MENA region. While our
Generics business has been impacted by industry-wide competitive pressures, we
have focused on controlling our costs, driving efficiencies and building our
specialty portfolio, which will support the outlook for this business going
forward.
Looking ahead, we are confident that we will deliver good growth across all
three of our businesses in 2023 as we continue to expand our product portfolio
and enhance our manufacturing and commercial footprint."
Reported results(1) (statutory) 2022 2021 Change Constant currency(2)
$ million $ million change
Revenue 2,517 2,553 (1)% 0%
Operating profit 282 582 (52)% (47)%
EBITDA(3) 680 727 (6)% (3)%
Profit attributable to shareholders 188 421 (55)% (49)%
Cashflow from operating activities 530 638 (17)% -
Basic earnings per share (cents) 83.9 182.3 (54)% (47)%
Total dividend per share (cents) 56 54 4% -
Core results(4) (underlying) 2022 2021 Change Constant currency(2)
$ million $ million change
Core revenue 2,517 2,553 (1)% 0%
Core operating profit 596 632 (6)% (1)%
Core EBITDA(3) 694 727 (5)% (1)%
Core profit attributable to shareholders 406 450 (10)% (4)%
Core basic earnings per share (cents) 181.3 194.8 (7)% (2)%
Diversified business model underpins resilient core performance
· Group revenue down 1% - a good performance from Injectables and
Branded, offset by the effect of severe competitive pressures in Generics and
foreign exchange headwinds in MENA
· Core operating profit down 6%, reflecting the significant reduction
in Generics profit and the impact of inflation. Reported operating profit down
52%, reflecting impairment charges totalling $181 million primarily related to
changes in our longer-term expectations for generic Advair Diskus(®) and
excess respiratory production capacity resulting from the rationalisation of
our R&D pipeline
· Core profit attributable to shareholders down 10% and reported profit
attributable to shareholders down 55%
· Cashflow from operating activities down 17% to $530 million primarily
reflecting the reduction in core operating profit and an increase in
inventories to ensure continuity of supply
· 6% of revenue invested in R&D, supporting a growing pipeline of
complex and specialty products
· Maintained a healthy balance sheet. Following acquisitions and share
buyback, leverage remained low at 1.5x net debt to core EBITDA(5) (31 December
2021: 0.6x)
· Full-year dividend of 56 cents per share, up from 54 cents per share
in 2021
Continued momentum in Injectables and Branded partially offset Generics
decline
· Injectables: revenue up 8% including contributions from acquisitions
and a good performance in Europe. Injectables core operating profit
increased by 8% with a core operating margin of 37.5%
· Branded: revenue up 3% (7% in constant currency) reflecting a good
contribution across most markets which offset foreign exchange headwinds.
Continued product mix improvements drove core operating profit growth of 17%
and a core operating margin of 21.1%
· Generics: revenue declined 18%, driven by significant price and
volume erosion, introduction of fewer new products and a slower than expected
ramp-up of recent launches. Core operating profit declined to $103 million and
core operating margin was 15.3%
Strong strategic progress, including geographic expansion, focus on new
products
· Injectables growth driven by acquisitions, new launches and expansion
into new geographies and partnerships:
o Successfully completed and integrated the acquisitions of Custopharm Inc.
in the US and Teligent's assets in Canada
o Signed further deals for our growing biosimilar portfolio in MENA,
including for ustekinumab and Vegzelma(®) with Celltrion Healthcare
o Increased European presence with entry into France
· Branded continuing to benefit from tiering structure, with ongoing
opportunities to grow market share:
o Hikma now third largest MENA pharmaceutical company by sales, up from
fourth largest in 2021(6)
o Strong contribution from high-value chronic medications
· Expanding our Generics specialty portfolio and strengthening
operations:
o Broadening portfolio with focus on higher barrier to entry specialty
products, including the launch of Ryaltris(®) nasal spray
o Streamlining our business, including restructuring our cost base
o Further investment in our commercial capabilities to support a growing
specialty portfolio
2023 outlook
· Injectables revenue growth in the range of 7% to 9%, with core
operating margin in the range of 36% to 37%
· Branded revenue growth in the mid to high-single-digits in constant
currency
· Generics revenue growth in the low double-digits, core operating
margin in the range of 16% to 18%
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
webinar at 11:00am GMT, and a recording will be made available on the
Company's website.
A link to register for the webinar can be found on our website at the
following link:
https://www.hikma.com/investors/results-reports-and-presentations
(https://www.hikma.com/investors/results-reports-and-presentations)
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
Associate Director, Investor
Relations
Layan Kalisse +44 (0)20 7399 2788/ +44 (0)7970 709912
Senior Associate, Investor Relations
Teneo (Press):
Charles Armitstead / Camilla Cunningham +44 (0)7703 330 269/
+44 (0)7464 982426
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 North America, 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 8,800 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
Hikma was founded 45 years ago to increase access to affordable medicines. As
the Group continues to grow, we strive to deliver on our purpose of putting
better health within reach, every day by making medicines more accessible and
more affordable for millions of people around the world.
Diversified business model underpins resilient core performance
Group revenue declined 1% versus the prior year, with a reduction in core
operating profit of 6%. At a divisional level, we saw a variation in
performance with the effect of severe industry-wide competitive pressures in
Generics partially offset by good growth from our larger Injectables and
Branded businesses.
Injectables revenue grew 8%, with core operating profit up 8%. This is a
high-quality global operation with multiple levers for growth. In the US, we
benefitted from recent launches, including 12 during 2022, and revenue
contribution from the Custopharm acquisition. In MENA, where we are
investing in local manufacturing for our own products, we saw good demand
across our portfolio, particularly for our biosimilar products. In Europe and
Rest of World (ROW), we are benefitting from a growing portfolio and our
ability to respond to market shortages in Germany. Our business in Canada is
also performing well following the acquisition of Teligent's Canadian assets.
Our Branded business continues to grow and is now the third largest
pharmaceutical company in the MENA region(7). The business achieved a good
overall performance while absorbing currency headwinds in our North African
markets, with revenue growth of 3% and core operating profit up 17%. Our
growth was driven by strong demand for medicines focused on chronic illnesses,
including our growing oral oncology portfolio. We also saw a normalisation
in demand for anti-infectives, following some reductions in prior years due to
the COVID-19 pandemic.
Our Generics business was impacted by the intense competitive environment in
the US, which drove low double-digit price erosion and mid single-digit volume
erosion. We also had a limited introduction of new products and a slower
than expected ramp-up of recently launched products. These factors resulted in
a reduction in revenue of 18% compared with 2021 and a decline in core
operating profit of 49%. Despite these challenges and thanks, in part, to
the focus we have put on improving efficiencies in recent years, we delivered
a core operating margin of 15.3%, in line with our guidance, and core
operating profit of $103 million.
Like many other businesses, we have also had to navigate the challenges of
operating in a volatile macroeconomic environment. We experienced an increase
in costs due to inflation, including higher shipping, utilities and employee
benefits costs. We were also impacted by a rise in interest rates. Through
operating efficiencies, we were able to absorb these increases to a large
degree, minimising their overall impact and demonstrating the strength and
resilience of our underlying business.
Investing to deliver on our strategy
Our strategy is centred on three pillars: delivering more from a strong
foundation, building a portfolio that anticipates future health needs and
inspiring and enabling our people.
Injectables is delivering more from its strong foundation by focusing on
optimising our global operational footprint to increase flexibility and
efficiency. This means sharing our engineering expertise across our plants,
leveraging our ability to supply our markets from across our operational base,
and ensuring the manufacture of our broad portfolio can adapt to meet changing
demand.
We have continued to invest in increasing capacity, with new high-speed lines
being added in Portugal and New Jersey and construction is underway for new
Injectables plants in Algeria and Morocco. We have a new R&D leadership
structure that is focused on adding more complex products to our portfolio.
We are establishing our new sterile compounding business in the US and, while
still in its infancy, this business is set to be an important contributor to
Hikma in the future as we establish ourselves as a leading compounder in the
US. We continue to make good strategic progress in our MENA Injectables
business. In 2022, we signed new licensing deals with Celltrion Healthcare and
Junshi Biosciences for biosimilar and biologic products. Finally, we continue
to expand in Europe with our entry into France, and are making good progress
in Canada. We expect these markets to be an important growth driver in the
years ahead.
Branded has benefitted from our strong local presence and the tiering
structure we introduced in 2018, where we focus on our highest value markets.
We saw good progress in most markets in 2022 and our flexible and local
manufacturing facilities and broad portfolio allowed us to be nimble and adapt
quickly to evolving demand. In 2022 we became the third largest
pharmaceutical company in MENA(8) - up from the fourth largest in 2021 and our
ambition is to keep growing and identifying opportunities where we can further
expand our market share. We are investing our R&D in complex and chronic
disease areas, such as diabetes, cardiovascular and oncology, and continue to
value the importance of partnerships, as well as selling our own products. We
are also adding new lines, capabilities and expanding capacity across our MENA
markets to ensure we are able to respond to growing market needs.
Our Generics business has continued to build its specialty portfolio of higher
barrier-to-entry products and dosage forms that are more insulated from
pricing pressure. By achieving a better balance between traditional generics
and more durable products, the business will be on a stronger footing for the
future. We have a state-of-the-art manufacturing facility in Columbus, Ohio,
and we will increasingly leverage its capabilities, capacity and quality
record for strategic contract manufacturing to help improve the resilience of
the business.
Acting responsibly for all our stakeholders
At Hikma, we divide our sustainability strategy into four focus areas:
advancing health and wellbeing, empowering our people, protecting the
environment and building trust through quality in everything we do.
Advancing health and wellbeing is built into our purpose. For our customers
and the patients they care for, we have been launching more products and
ensuring availability of existing products, working closely with hospitals,
pharmacies and buying groups to ensure their needs are met. In 2022 we
launched 182 products across our markets. We are also committed to working
closely with our communities, a practice which is ingrained across Hikma's
operations. For example, in response to extreme floods in Sudan, we worked
alongside the Chamber of Industry in the city of Managil to provide malaria
medications to more than 2,800 people, and in Jordan, Egypt and Algeria we are
supporting 40 refugees by providing higher education scholarships and
internship opportunities.
We are all too aware of the threat of climate change and we have been working
hard to achieve our target of reducing Scope 1 and 2 emissions by 25% by 2030.
During 2022 we enhanced our capacity for solar energy generation in our
Portugal site, and achieved LEED certification for our new head office in
Amman, Jordan. We are also focusing on our Scope 3 emissions, working with a
third party agency to better understand the impact of our upstream supply
chain so that we can begin to make improvements in this important area. More
information around our progress will be available in our Annual Report, to be
published on 16 March 2023.
Our people are vital to our success, and we are proud of our culture and
values. Culture is forged in our history. Many of our staff have been with us
for decades, and this corporate memory can be passed on to our newer recruits.
We are one global company united by a simple vision and this has been the case
since the business was founded 45 years ago.
Our culture also results in a quality mindset. In this industry, failures in
quality systems can put lives at risk. We care greatly about what we do,
demonstrated by the relentless focus on the highest quality at our plants,
whether it be through the number of quality professionals, the high levels of
automation in the plants, or the rigorous levels of testing that our finished
products go through.
Governance and leadership
In June 2022, Siggi Olafsson stepped down as CEO. Our Executive Chairman, Said
Darwazah, returned to his previous role as CEO, providing important strategic
continuity. The search for a new CEO is ongoing and an update will be
provided when an appointment is made.
In the second half of the year, we welcomed three new independent
non-executive directors to the Board. Victoria Hull, Deneen Vojta and Laura
Balan collectively bring a wealth of experience covering the US and global
healthcare industries and capital markets. We are pleased to report that we
now have 45% female representation on the Board.
2023 Outlook
We remain confident in our strategy and expect to continue the strong growth
seen in Injectables and Branded this year, and for Generics to return to
growth in 2023.
For Injectables, we expect revenue to grow between 7% and 9% and for core
operating margin to be between 36% and 37%. This reflects our broad
portfolio and flexible manufacturing capabilities across our geographies,
supported by new product launches.
For Branded, we expect mid to high single-digit constant currency revenue
growth, driven by our expanding portfolio and focus on chronic medications.
For Generics, we expect to grow in the low double-digits and for core
operating margin to be between 16% and 18%. This reflects contribution from
new launches supported by our commercial strength.
We expect Group core net finance expense to be around $78 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 of $140 million to $160
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, Branded and Generics for the year ended 31 December 2022.
Group
2022 2021 Change Constant currency
$ million $ million change
Revenue 2,517 2,553 (1)% 0%
Core revenue 2,517 2,553 (1)% 0%
Gross profit 1,238 1,301 (5)% (4)%
Core gross profit 1,265 1,301 (3)% (2)%
Core gross margin 50.3% 51.0% (0.7)pp (1.0)pp
Operating profit 282 582 (52)% (47)%
Core operating profit 596 632 (6)% (1)%
Core operating margin 23.7% 24.8% (1.1)pp (0.5)pp
EBITDA 680 727 (6)% (3)%
Core EBITDA 694 727 (5)% (1)%
Group revenue was down 1% reflecting a weaker performance in Generics,
partially offset by good growth in Injectables and Branded. Group gross margin
reduced slightly, due to the decline in Generics gross margin which was
partially offset by the improvement in product mix in Injectables and Branded.
Group operating expenses were $956 million (2021: $719 million). Excluding
adjustments related to the amortisation of intangible assets (other than
software) of $92 million (2021: $73 million) and exceptional items of $195
million (2021: $23 million net income), Group core operating expenses were
$669 million (2021: $669 million).
Selling, general and administrative (SG&A) expenses were $615 million
(2021: $561 million). Excluding the amortisation of intangible assets (other
than software) and exceptional items, core SG&A expenses were $509 million
(2021: $488 million), up 4%, primarily due to an increase in spend in
Injectables related to the consolidation of recent acquisitions, an increase
in investment as we enter new and adjacent markets, and an increase in
shipping costs due to inflation.
Research and development (R&D) expenses were $144 million (2021: $143
million), representing 6% of Group core revenue (2021: 6%), in line with our
strategy.
Other net operating expenses were $192 million (2021: $15 million) reflecting
impairment charges totalling $181 million primarily related to changes in our
longer-term expectations for generic Advair Diskus(®) and excess respiratory
production capacity resulting from the rationalisation of our R&D
pipeline. Excluding exceptional items(10), core other net operating expenses
were $11 million (2021: $38 million), primarily reflecting foreign
exchange-related costs which were partially offset by income from product
disposals and legal settlements.
The reduction in core operating profit by 6% and core operating margin to
23.7% were primarily driven by the decline in Generics, which was partially
offset by the good performance in Injectables and Branded.
Group core revenue by business segment
2022 2021
$ million $ million
Injectables 1,141 45% 1,053 41%
Branded 691 27% 669 26%
Generics 672 27% 820 32%
Others 13 1% 11 0%
Total 2,517 2,553
Group core revenue by region
2022 2021
$ million $ million
US 1,433 57% 1,511 59%
MENA 866 34% 847 33%
Europe and ROW 218 9% 195 8%
Total 2,517 2,553
Injectables
2022 2021 Change Constant currency change
$ million $ million
Revenue 1,141 1,053 8% 10%
Core revenue 1,141 1,053 8% 10%
Gross profit 617 581 6% 7%
Core gross profit 643 581 11% 11%
Core gross margin 56.4% 55.2% 1.2pp 0.3pp
Operating profit 345 351 (2)% (3)%
Core operating profit 428 395 8% 8%
Core operating margin 37.5% 37.5% 0.0pp (1.0)pp
Injectables revenue grew 8% in 2022, 10% in constant currency, benefitting
from our broad portfolio and new launches as well as a good contribution from
the acquisitions of Custopharm Inc. in the US and Teligent's Canadian
assets. Organic revenue growth was 2% reported and 4%(11) in constant
currency.
US Injectables revenue grew 10% to $761 million (2021: $691 million),
reflecting $53 million sales contribution from the Custopharm acquisition,
which closed in April, as well as a good contribution from our broad portfolio
and recent launches.
Europe and ROW Injectables revenue was $202 million, up 11% (2021: $182
million). In constant currency, Europe and ROW Injectables revenue increased
by 20%. We are benefitting from good demand across most of our markets,
particularly in Germany, and a $17 million contribution from the acquisition
of Teligent's Canadian assets.
MENA Injectables revenue was $178 million, down 1% (2021: $180 million)
primarily due to the impact of foreign exchange headwinds in our North African
markets. On a constant currency basis, revenue was up 2%, reflecting the
impact of hyperinflation on 2021 revenue. Excluding this impact, we saw good
underlying growth driven by demand across our portfolio, particularly our
growing biosimilar portfolio, as we continue to launch into new markets.
Core gross profit grew 11% to $643 million and core gross margin was 56.4%,
reflecting an improvement in product mix, which more than offset an increase
in costs due to inflation.
Injectables core operating profit, which excludes the amortisation of
intangible assets (other than software)(12) grew 8% and core operating margin
was 37.5%. This reflects the increase in gross profit which more than offset
higher R&D in the US as we build a pipeline of complex products, an
increase in sales and marketing costs to support our expansion into Europe,
spending on the establishment of our new sterile compounding business in the
US, spend related to the integration of recent acquisitions, as well as an
increase in costs due to inflation, including for shipping and utilities.
During the year, the Injectables business had 12 launches in the US, 41 in
MENA and 47 in Europe and ROW. We submitted 149 filings to regulatory
authorities across all markets. This reflects the ongoing expansion of our
European portfolio. We also signed new licensing deals, including three new
biosimilars for the MENA market.
In 2023, we expect Injectables revenue to grow in the range of 7% to 9%. We
expect core operating margin to be in the range of 36% to 37%.
Branded
2022 2021 Change Constant currency change
$ million $ million
Revenue 691 669 3% 7%
Core revenue 691 669 3% 7%
Gross profit 350 328 7% 12%
Core gross profit 350 328 7% 12%
Core gross margin 50.7% 49.0% 1.7pp 2.3pp
Operating profit 136 104 31% 57%
Core operating profit 146 125 17% 38%
Core operating margin 21.1% 18.7% 2.4pp 5.5pp
Our Branded business grew revenue 3% in 2022, which includes the impact of
hyperinflation and foreign exchange headwinds. In constant currency, revenue
grew 7%, with a good performance across most of our markets, particularly
Algeria, Saudi Arabia and Iraq.
Reported and core gross profit grew 7% and, on a constant currency basis,
reported and core gross profit grew 12%, reflecting an improvement in product
mix, driven by our growing portfolio of oncology and chronic medications, as
well as new launches.
Core operating profit, which excludes the amortisation of intangibles (other
than software) and exceptional items(13) grew 17% and core operating margin
expanded to 21.1%. This reflects the improvement in gross profit and good
control of sales and marketing costs, which more than offset an increase in
R&D and G&A costs, as well as the negative impact of currency
devaluation in our North African markets.
During the year, the Branded business had 79 launches and submitted 193
filings to regulatory authorities. Revenue from in-licensed products
represented 35% of Branded revenue (2021: 36%).
We expect Branded revenue in 2023 to grow in the mid to high single-digits in
constant currency.
Generics
2022 2021 Change
$ million $ million
Revenue 672 820 (18)%
Core revenue 672 820 (18)%
Gross profit 265 388 (32)%
Core gross profit 266 388 (31)%
Core gross margin 39.6% 47.3% (7.7)pp
Operating profit (117) 217 (154)%
Core operating profit 103 202 (49)%
Core operating margin 15.3% 24.6% (9.3)pp
Revenue in our Generics business declined 18% in 2022, driven by the
challenging competitive environment in the US, with limited introduction of
new products and a slower than expected ramp up of recent launches to help
offset this. We experienced sustained low double-digit price erosion as well
as related mid single-digit volume erosion.
The decline in Generics core gross profit and margin reduction to 39.6% was
primarily a result of the impact of price and volume erosion.
Generics core operating profit, which excludes the amortisation of intangible
assets (other than software) and exceptional items(14), declined 49% due to
the reduction in gross profit, as well as an increase in sales and marketing
costs as we continue to build out the commercial capabilities necessary for
our expanding specialty business. Through tight control of costs elsewhere and
by driving efficiencies, core operating margin was 15.3%.
On a reported basis, Generics made an operating loss of $(117) million due to
impairment charges related to changes in our longer-term expectations for
generic Advair Diskus(®) and excess respiratory production capacity resulting
from the rationalisation of our R&D pipeline.
In 2022, the Generics business launched three products and submitted seven
filings to regulatory authorities.
In 2023, we expect Generics revenue to grow in the low double-digits. We
expect core operating margin to be in the range of 16% to 18%.
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 $13 million in 2022 (2021:
$11 million) with an operating profit of $3 million (2021: $2 million).
Research and development
Our investment in R&D and business development enables us to continue
expanding the Group's product portfolio. During 2022, we had 182 new
launches and received 270 approvals. To ensure the continuous development of
our product pipeline, we submitted 349 regulatory filings.
2022 submissions(15) 2022 approvals(15) 2022 launches(15)
Injectables 149 129 100
US 14 15 12
MENA 77 59 41
Europe & ROW 58 55 47
Branded 193 136 79
Generics 7 5 3
Total 349 270 182
Net finance expense
2022 2021 Change Constant currency change
Finance income 29 30 (3)% 0%
Finance expense 81 69 17% 10%
Net finance expense 52 39 33% 18%
Core finance income 3 1 200% 300%
Core finance expense 77 56 38% 29%
Core net finance expense 74 55 35% 24%
On a reported basis, net finance expense was $52 million (2021: $39 million).
This comprised $29 million finance income and $81 million finance expense.
Excluding exceptional items(16), core net finance expense was $74 million
(2021: $55 million). This comprised $3 million finance income and $77 million
finance expense. The increase primarily reflects the rising interest rate
environment and increased borrowing due to the acquisitions of Custopharm Inc.
and Teligent's Canadian assets.
We expect core net finance expense to be around $78 million in 2023(17).
Profit before tax
Reported profit before tax decreased to $233 million (2021: $544 million),
primarily due to the impairment in the Generics business. Excluding the
amortisation of intangibles (other than software) and exceptional items(18),
core profit before tax was $520 million (2021: $578 million), down 10%.
Tax
The Group incurred a reported tax expense of $42 million (2021: $124 million)
and a reported effective tax rate of 18.0% (2021: 22.8%). The decrease is due
to the change in earnings mix, primarily as a result of the impairment in the
Generics business in the US. Excluding exceptional items, Group core tax
expense was $111 million (2021: $129 million). The core effective tax rate
decreased marginally to 21.3% (2021: 22.3%).
We expect the Group core effective tax rate to be in the range of 22% to 23%
in 2023.
Profit attributable to shareholders
Profit attributable to shareholders was $188 million (2021: $421 million).
Core profit attributable to shareholders decreased by 10% to $406 million
(2021: $450 million).
Earnings per share
2022 2021 Change Constant currency change
Basic earnings per share (cents) 83.9 182.3 (54)% (47)%
Core basic earnings per share (cents) 181.3 194.8 (7)% (1)%
Diluted earnings per share (cents) 83.6 180.7 (54)% (47)%
Core diluted earnings per share (cents) 180.4 193.1 (7)% 0%
Weighted average number of Ordinary Shares for the purposes of basic earnings 224 231 - -
('m)
Weighted average number of Ordinary Shares for the purposes of diluted 225 233 - -
earnings ('m)
The decrease in core earnings per share reflects the decline in profit
attributable to shareholders as a result of the weaker performance in
Generics, slightly offset by the value for shareholders created by the Group's
buyback of 12.5 million Ordinary Shares in the first half of 2022.
Dividend
The Board is recommending a final dividend of 37 cents per share (2021: 36
cents per share) bringing the total dividend for the full year to 56 cents per
share (2021: 54 cents per share). The proposed dividend will be paid on 5
May 2023 to eligible shareholders on the register at the close of business on
24 March 2023, subject to approval at the Annual General Meeting on 28 April
2023.
Net cash flow, working capital and net debt
The Group generated operating cash flow of $530 million (2021: $638 million).
This change primarily reflects the lower operating profit from our Generics
business, as well as an increase in inventories to ensure continuity of
supply.
Group working capital days were 251 at 31 December 2022. Compared to the
position on 31 December 2021, Group working capital days increased by 13 days
from 238 days, as we increased our inventory.
Capital expenditure was $138 million (2021: $145 million). In the US, $46
million was spent upgrading equipment and adding new lines and technologies
for our Injectables business, including enhancing our new compounding facility
in Dayton, New Jersey. Our Generics business primarily focused on replacement
and necessary upgrades. In MENA, $72 million was spent strengthening and
expanding manufacturing capabilities, including two ongoing greenfield
Injectables production sites in Algeria and Morocco. In Europe, we spent $20
million enhancing our manufacturing capabilities, including the installation
of new filling lines in Portugal and Italy. We expect Group capital
expenditure to be in the range of $140 million to $160 million in 2023.
The Group's total debt increased to $1,283 million at 31 December 2022 (31
December 2021: $846 million). This increase primarily reflects funding the
acquisitions of Custopharm Inc. and Teligent's Canadian assets.
The Group's cash balance at 31 December 2022 was $270 million (31 December
2021: $426 million).
The Group's net debt (excluding co-development agreements and contingent
liabilities) was $1,013 million at 31 December 2022 (31 December 2021: $420
million), reflecting the increase in total debt and the share buyback. We
continue to have a healthy balance sheet, with a net debt to core EBITDA ratio
of 1.5x (31 December 2021: 0.6x).
Balance sheet
Net assets at 31 December 2022 were $2,148 million (31 December 2021: $2,467
million). Net current assets were $922 million (31 December 2021: $1,078
million). The decline reflects the increase in the Group's total debt and
reduction in cash, primarily due to acquisitions and the purchase of 12.5
million of our own shares resulting from the $300 million share buyback
announced in February 2022.
The Board
The Board of Directors that served during the twelve-month period to 31
December 2022 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. Our core results exclude
the exceptional items and other adjustments set out in Note 5 of the Group
consolidated financial statements.
Group gross profit 2022 2021
$million $million
Core gross profit 1,265 1,301
Unwinding of acquisition related inventory step-up (27) -
Reported gross profit 1,238 1,301
Group operating profit 2022 2021
$million $million
Core operating profit 596 632
Intangible assets write-down - (13)
Net impairment reversal of product related intangibles - 36
Intangible assets amortisation other than software (92) (73)
Reorganisation costs (14) -
Impairment of property, plant and equipment and right-of-use-assets (80) -
Impairment of intangible assets (101) -
Unwinding of acquisition related inventory step-up (27) -
Reported operating profit 282 582
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 2022 represent reported 2022 numbers translated
using 2021 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, impairment charges/reversals and unwinding of acquisition related
inventory step-up. Core EBITDA is adjusted for exceptional items.
EBITDA 2022 2021
$ million $ million
Reported operating profit 282 582
Adjustments for depreciation, amortisation, net impairment charges/reversals
and write-down of:
Property, plant and equipment 157 72
Intangible assets 202 61
Right-of-use assets 13 12
Unwinding of acquisition related inventory step-up 26 -
Reported EBITDA 680 727
Exceptional items:
Reorganisation costs 14 -
Core EBITDA 694 727
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 2022 31 Dec 2021
$ million $ million
Short-term financial debts (139) (112)
Short-term leases liabilities (9) (9)
Long-term financial debts (1,074) (651)
Long-term leases liabilities (61) (74)
Total debt (1,283) (846)
Cash, cash equivalents 270 426
Net debt (1,013) (420)
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,
although the impacts of global inflationary pressures and supply chain
challenges continue to be closely monitored. The principal risks are set out
in the 2022 annual report on pages 60 - 68, which will be available on 16
March 2023. 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 2022 reported results include non-cash exceptional items related to
impairments - further information can be found below
(2) Constant currency numbers in 2022 represent reported 2022 numbers
translated using 2021 exchange rates, excluding price increases in the
business resulting from the devaluation of the Sudanese pound and excluding
the impact from hyperinflation accounting
(3) EBTIDA is earnings before interest, tax, depreciation, amortisation,
assets write-down, impairment charges/reversals and unwinding of acquisition
related inventory step-up. Core EBITDA is adjusted for exceptional items.
EBITDA is a non-IFRS measure, see page 16 for a reconciliation to reported
IFRS results
(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 consolidated financial statements set out
in this release. Core results are a non-IFRS measure and a reconciliation to
reported IFRS measures is provided on page 15
(5) 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 position
6 IQVIA Midas MAT September 2022 for Algeria, Egypt, Jordan, Kuwait, Lebanon,
Morocco, Saudi Arabia, Tunisia, UAE. USD sales
(7) IQVIA Midas MAT September 2022 for Algeria, Egypt, Jordan, Kuwait,
Lebanon, Morocco, Saudi Arabia, Tunisia, UAE. USD sales
(8) IQVIA Midas MAT September 2022 for Algeria, Egypt, Jordan, Kuwait,
Lebanon, Morocco, Saudi Arabia, Tunisia, UAE. USD sales
(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 consolidated financial statements set out
in this release. Core results are a non-IFRS measure and a reconciliation to
reported IFRS measures is provided on page 15
(10) In 2022, exceptional items comprised a $80 million impairment charge on
PPE and right-of-use-assets and a $101 million impairment charge on intangible
assets. In 2021, 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. Refer to Note 5 of
the consolidated financial statements set out in this release for further
information
(11) This excludes revenue contribution from Custopharm of $53 million and
Teligent's Canadian assets of $17 million
(12) Exceptional items comprised a $4 million impairment charge on PPE and
right-of-use assets, a $26 million unwinding of acquisition related inventory
step-up, a $8 million impairment charge on intangible assets and
reorganisation costs of $2 million. Amortisation of intangible assets (other
than software) was $43 million. In 2021, exceptional items comprised a $10
million impairment of product related intangibles and a $1 million intangible
assets write-down. 2021 amortisation of intangible assets (other than
software) was $33 million. Refer to Note 5 of the consolidated financial
statements set out in this release for further information
(13) Exceptional items comprise reorganisations costs of $2 million.
Amortisation of intangible assets (other than software) was $8 million. 2021
exceptional items comprised a $11 million intangible assets write-down. 2021
amortisation of intangible assets (other than software) was $10 million. Refer
to Note 5 of the consolidated financial statements set out in this release for
further information
(14) Exceptional items comprised a $76 million impairment charge on PPE and
right-of-use assets, $1 million unwinding of acquisition related inventory
step-up, a $93 million impairment charge on intangible assets and
reorganisation costs of $9 million. Amortisation of intangible assets (other
than software) was $41 million. 2021 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. 2021 amortisation of intangible assets (other than
software) was $30 million. Refer to Note 5 of the consolidated financial
statements set out in this release for further information
(15) Pipeline projects submitted, approved and launched by country in 2022
( )
(16) Exceptional items comprised $26 million non-cash finance income related
to remeasurement of contingent consideration and a $4 million non-cash finance
expense related to the unwinding of contingent consideration and other
financial liability
(17) Based on the composition of the Group's net debt portfolio as at 31
December 2022, a one percentage point increase/decrease in interest rates
would result in $4 million decrease/increase in net finance cost per year
(2021: $2 million increase/decrease)
(18) Exceptional items comprised a $5 million net gain from investment
divestiture, $14 million of reorganisation costs, a $80 million impairment
charge on PPE and right-of-use assets, a $27 million cost related to unwinding
of acquisition related inventory step-up, a $101 million impairment charge on
intangible assets, $26 million non-cash finance income related to
remeasurement of contingent consideration and a $4 million non-cash finance
expense related to the unwinding of contingent consideration and other
financial liability. Amortisation of intangible assets (other than software)
was $92 million. Refer to Note 5 of the consolidated financial statements set
out in this release for further information
Hikma Pharmaceuticals PLC
Consolidated income statement
For the year ended 31 December 2022
2022 2022 2022 Reported 2021 2021 2021 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 2,517 - 2,517 2,553 - 2,553
Cost of sales (1,252) (27) (1,279) (1,252) - (1,252)
Gross profit/(loss) 1,265 (27) 1,238 1,301 - 1,301
Selling, general and administrative expenses (509) (106) (615) (488) (73) (561)
Net impairment loss on financial assets (5) - (5) - - -
Research and development expenses (144) - (144) (143) - (143)
Other operating expenses (25) (181) (206) (40) (37) (77)
Other operating income 14 - 14 2 60 62
Total operating expenses (669) (287) (956) (669) (50) (719)
Operating profit/(loss) 4 596 (314) 282 632 (50) 582
Finance income 3 26 29 1 29 30
Finance expense (77) (4) (81) (56) (13) (69)
Loss from investment at fair value through profit and loss (FVTPL) (2) - (2) - - -
Results from joint venture - - - 1 - 1
Gain from investment divestiture(1) - 5 5 - - -
Profit/(loss) before tax 520 (287) 233 578 (34) 544
Tax 6 (111) 69 (42) (129) 5 (124)
Profit/(loss) for the year 409 (218) 191 449 (29) 420
Attributable to:
Non-controlling interests 3 - 3 (1) - (1)
Equity holders of the parent 406 (218) 188 450 (29) 421
Earnings per share (cents)
Basic 8 181.3 83.9 194.8 182.3
Diluted 8 180.4 83.6 193.1 180.7
1. Represents $8 million from reclassification of translation gains
previously included in other comprehensive income and the $3 million loss on
disposal of Hikma Liban S.A.R.L.
Hikma Pharmaceuticals PLC
Consolidated statement of comprehensive income
For the year ended 31 December 2022
2022 2022 Exceptional items and other adjustments (Note 5) 2022 2021 2021 Exceptional items and other adjustments (Note 5) 2021
Core
Reported results
Core
Reported results
results
results
$m $m $m $m $m $m
Profit for the year 409 (218) 191 449 (29) 420
Other comprehensive income
Items that may subsequently be reclassified to the consolidated income
statement:
Currency translation and hyperinflation movement (87) - (87) (22) - (22)
Reclassification of translation gains on disposal of subsidiary(1) - (8) (8) - - -
Items that will not subsequently be reclassified to the consolidated income
statement, net of tax(2):
Remeasurement of post-employment benefit obligations - - - (1) - (1)
Change in investments at fair value through other comprehensive income (8) - (8) 14 - 14
(FVTOCI)
Total other comprehensive income for the year (95) (8) (103) (9) - (9)
Total comprehensive income for the year 314 (226) 88 440 (29) 411
Attributable to:
Non-controlling interests - - - 2 - 2
Equity holders of the parent 314 (226) 88 438 (29) 409
314 (226) 88 440 (29) 411
1. $8 million translation reserve gains attributable to equity holders of the
parent was recognised in the consolidated income statement on disposal of
Hikma Liban S.A.R.L.
2. In 2022, there was no tax on other comprehensive income items. In 2021, the
tax amount was $1 million related to remeasurement of post-employment benefit
Hikma Pharmaceuticals PLC
Consolidated balance sheet
At 31 December 2022
2022 2021
Note $m $m
Non-current assets
Goodwill 9 389 285
Other intangible assets 9 735 607
Property, plant and equipment 10 1,024 1,072
Right-of-use assets 57 74
Investment in joint ventures 10 10
Deferred tax assets 192 183
Financial and other non-current assets 65 47
2,472 2,278
Current assets
Inventories 776 695
Income tax receivable 32 60
Trade and other receivables 11 809 816
Cash and cash equivalents 270 426
Other current assets 110 97
Assets classified as held for distribution 2 −
1,999 2,094
Total assets 4,471 4,372
Current liabilities
Short-term financial debts 12 139 112
Lease liabilities 9 9
Trade and other payables 13 476 468
Income tax payable 73 57
Other provisions 32 31
Other current liabilities 348 339
1,077 1,016
Net current assets 922 1,078
Non-current liabilities
Long-term financial debts 14 1,074 651
Lease liabilities 61 74
Deferred tax liabilities 19 24
Other non-current liabilities 92 140
1,246 889
Total liabilities 2,323 1,905
Net assets 2,148 2,467
Equity
Share capital 40 42
Share premium 282 282
Other reserves (265) (60)
Translation reserve related to assets held for distribution (14) −
Retained earnings 2,092 2,189
Equity attributable to equity holders of the parent 2,135 2,453
Non-controlling interests 13 14
Total equity 2,148 2,467
Hikma Pharmaceuticals PLC
Consolidated statement of changes in equity
For the year ended 31 December 2022
Merger and revaluation reserves(1) Translation reserve Capital redemption reserve Total other reserves Translation reserve related to assets held for distribution(2) Retained earnings Share capital Share premium Equity attributable to equity shareholders of the parent Non-controlling interests Total
equity
Note $m $m $m $m $m $m $m $m $m $m $m
Balance at 1 January 2021 119 (199) - (80) - 1,892 41 282 2,135 13 2,148
Profit for the year 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 7 - - - - - (120) - - (120) (1) (121)
Balance at 31 December 2021 and 1 January 2022 164 (224) - (60) - 2,189 42 282 2,453 14 2,467
Profit for the year - - - - - 188 - - 188 3 191
Change in fair value of investments at FVTOCI - - - - - (8) - - (8) - (8)
Currency translation and hyperinflation movement - (84) - (84) - - - - (84) (3) (87)
Reclassification of translation gains on disposal of subsidiary(1) - (8) - (8) - - - - (8) - (8)
Total comprehensive income for the year - (92) - (92) - 180 - - 88 - 88
Total transactions with owners, recognised directly in equity
Transfer of merger reserve(2) (129) - - (129) - 129 - - - - -
Issue of Ordinary Bonus Share - - - - - (1,746) 1,746 - - - -
Cancellation of Ordinary Bonus Share - - - - - 1,746 (1,746) - - - -
Cost of equity-settled employee share scheme - - - - - 22 - - 22 - 22
Dividends paid 7 - - - - - (125) - - (125) (3) (128)
Ordinary Shares purchased and cancelled - - 2 2 - (300) (2) - (300) - (300)
Share buyback transaction costs - - - - - (3) - - (3) - (3)
Other comprehensive income accumulated in equity related to assets held for - 14 - 14 (14) - - - - - -
distribution(3)
Acquisition of subsidiaries - - - - - - - - - 2 2
Balance at 31 December 2022 35 (302) 2 (265) (14) 2,092 40 282 2,135 13 2,148
1. $8 million translation reserve gains attributable to equity
holders of the parent was recognised in the consolidated income statement in
relation to Hikma Liban S.A.R.L. disposal
2. $129 million of the merger reserve balance which relates to
Columbus business acquisition was transferred to retained earnings as a result
of the capitalisation of the Company's merger reserve
3. Translation reserve related to assets held for distribution
represent cumulative translation loss recognised in other comprehensive income
attributable to equity holders of the parent in relation to Pharma Ixir Co.
Ltd which is currently under liquidation
Hikma Pharmaceuticals PLC
Consolidated cash flow statement
For the year ended 31 December 2022
2022 2021
Note $m $m
Cash flows from operating activities
Cash generated from operations 15 585 767
Income taxes paid (103) (131)
Income taxes received 48 2
Net cash inflow from operating activities 530 638
Cash flow from investing activities
Purchases of property, plant and equipment (138) (145)
Proceeds from disposal of property, plant and equipment 1 -
Purchase of intangible assets (87) (84)
Proceeds from disposal of intangible assets 9 -
Proceeds from sale of investment at FVTOCI - 5
Additions of investments at FVTOCI (15) (3)
Acquisition of subsidiary undertakings net of cash acquired 16 (373) -
Proceeds from investment divestiture - 1
Cash loss on disposal of subsidiary (1) -
Payments of contingent consideration liability (6) (6)
Milestone payments of acquired contingent liability - (11)
Interest income received 3 2
Acquisition related amounts held in escrow account - 3
Net cash outflow from investing activities (607) (238)
Cash flow from financing activities
Proceeds from issue of long-term financial debts 1,401 10
Repayment of long-term financial debts (962) (45)
Proceeds from short-term borrowings 380 383
Repayment of short-term borrowings (363) (431)
Repayment of lease liabilities (9) (31)
Dividends paid 7 (125) (120)
Dividends paid to non-controlling shareholders of subsidiaries (3) (1)
Interest and bank charges paid (68) (50)
Revolving credit facility upfront fees paid (5) -
Share buyback (300) -
Share buyback transaction costs (3) -
Payment to co-development and earnout payment agreement (1) (2)
Net cash outflow from financing activities (58) (287)
Net (decrease)/increase in cash and cash equivalents (135) 113
Cash and cash equivalents at beginning of year 426 323
Foreign exchange translation movements (21) (10)
Cash and cash equivalents at end of year 270 426
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.
(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 also
prepared in accordance with UK-adopted international accounting standards, the
requirements of the Companies Act 2006, and the IFRS as issued by the 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.
The financial information does not constitute the Company's statutory accounts
for the years to 31 December 2022 or 2021 but is derived from those accounts.
The auditors have reported on those accounts and their report (i) was
unqualified, (ii) did not include a reference to any matters to which the
auditors drew attention by way of emphasis without qualifying their report and
(iii) did not contain a statement under section 498 (2) or (3) of the
Companies Act 2006 in respect of the accounts for the year to 31 December 2022
or 31 December 2021.
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 2022.
IAS 16 (Amendments) Property, Plant and Equipment: proceeds before intended use
IFRS 3 (Amendments) Reference to the conceptual framework
IAS 37 (Amendments) Onerous contracts - cost of fulfilling a contract
Annual improvements to IFRS standards 2018-2020 - Improvements to IFRS 9 Financial Instruments
- Improvements to IFRS 16 Leases
These amendments had no significant impact on the consolidated financial
statements of the Group but may impact the accounting for future transactions
and arrangements.
The standards and interpretations that had been issued but were not mandatory
for annual reporting periods ending on 31 December 2022 were not early
adopted. The Group doesn't expect any significant impact from applying these
standards and interpretations.
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.
Exceptional items and other adjustments
Core results mainly exclude:
- Amortisation of intangible assets other than software
- Impairment charge/reversal of intangible assets and property, plant
and equipment
- Finance income and expense resulting from remeasurement, unwinding of
contingent consideration and co-development earnout payment agreement
financial liabilities
- Exceptional items 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
Our core results exclude the exceptional items and other adjustments set out
in Note 5 in the Notes to the consolidated financial statements.
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 and the
amortisation is recognised in the selling, general and administrative
expenses.
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.
Intangible assets are measured at cost, less any accumulated amortisation and
impairment losses.
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
lives
(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
Details of the intangible assets useful lives are included in Note 9.
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 at 31 December 2022. The Group expects to
remain in compliance with those covenants for the going concern analysis
period even in the severe but plausible downside scenarios. As of 31 December
2022, 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 tables provide an analysis of the Group's reported revenue by
segment and geographical market, irrespective of the origin of the
goods/services:
Injectables Generics Branded Others Total
Year ended 31 December 2022 $m $m $m $m $m
United States 761 672 - - 1,433
Middle East and North Africa 178 - 681 7 866
Europe and rest of the world 194 - 10 6 210
United Kingdom 8 - - - 8
1,141 672 691 13 2,517
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
The top selling markets are as below:
2022 2021
$m $m
United States 1,433 1,511
Saudi Arabia 240 218
Algeria 132 112
Egypt 115 127
1,920 1,968
In 2022, included in revenue arising from the Generics and Injectables
segments are sales the Group made to three wholesalers in the US, each
accounting for equal to or greater than 10% of the Group's revenue: $361
million (14% of Group revenue), $330 million (13% of Group revenue) and $251
million (10% of Group revenue). In 2021, sales to these wholesalers were $402
million (16% of Group revenue), $341 million (13% of Group revenue) and $230
million (9% of Group revenue), respectively.
The following table provides contract balances related to revenue:
2022 2021
$m $m
Trade receivables (Note 11) 777 781
Contract and refund liabilities 193 213
Trade receivables are non-interest bearing and typical credit terms range from
30 to 90 days in the US, 30 to 120 days in Europe and 180 to 360 days in MENA.
Contract and refund liabilities relate to returns and free goods provisions.
4. Business segments
For management reporting purposes, the Group is organised into three principal
operating divisions - Injectables, Branded and Generics. 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 2022 2022 2022 Reported 2021 2021 2021 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 1,141 - 1,141 1,053 - 1,053
Cost of sales (498) (26) (524) (472) - (472)
Gross profit/(loss) 643 (26) 617 581 - 581
Total operating expenses (215) (57) (272) (186) (44) (230)
Segment result 428 (83) 345 395 (44) 351
Branded 2022 2022 2022 Reported 2021 2021 2021 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 691 - 691 669 - 669
Cost of sales (341) - (341) (341) - (341)
Gross profit 350 - 350 328 - 328
Total operating expenses (204) (10) (214) (203) (21) (224)
Segment result 146 (10) 136 125 (21) 104
2022 2022 2022 Reported 2021 2021 2021 Reported
Core results
Exceptional items and other adjustments
results
Core results
Exceptional items and other adjustments
results
Generics
(Note 5)
(Note 5)
$m $m $m $m $m $m
Revenue 672 - 672 820 - 820
Cost of sales (406) (1) (407) (432) - (432)
Gross profit/(loss) 266 (1) 265 388 - 388
Total operating expenses (163) (219) (382) (186) 15 (171)
Segment result 103 (220) (117) 202 15 217
Others(1) 2022 2022 2022 Reported 2021 2021 2021 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 13 - 13 11 - 11
Cost of sales (6) - (6) (6) - (6)
Gross profit 7 - 7 5 - 5
Total operating expenses (4) - (4) (3) - (3)
Segment result 3 - 3 2 - 2
1. Others mainly comprises Arab Medical Containers LLC and International
Pharmaceutical Research Centre LLC
2022 2022 2022 Reported 2021 2021 2021 Reported
Core results
Exceptional items and other adjustments
results
Core results
Exceptional items and other adjustments
results
(Note 5)
(Note 5)
Group $m $m $m $m $m $m
Segment result 680 (313) 367 724 (50) 674
Unallocated expenses¹ (84) (1) (85) (92) - (92)
Operating profit/(loss) 596 (314) 282 632 (50) 582
Finance income 3 26 29 1 29 30
Finance expense (77) (4) (81) (56) (13) (69)
Loss from investment at FVTPL (2) - (2) - - -
Results from joint venture - - - 1 - 1
Gain from investment divestiture - 5 5 - - -
Profit/(loss) before tax 520 (287) 233 578 (34) 544
Tax (111) 69 (42) (129) 5 (124)
Profit/(loss) for the year 409 (218) 191 449 (29) 420
Attributable to:
Non-controlling interests 3 - 3 (1) - (1)
Equity holders of the parent 406 (218) 188 450 (29) 421
1. Unallocated corporate expenses mainly comprise employee costs, third-party
professional fees, IT and travel expenses
The following table provides an analysis of the Group non-current assets(2) by
geographic area:
2022 2021
(restated)(3)
$m $m
United States 1,305 1,140
Middle East and North Africa
Jordan 349 365
Algeria 85 69
Others 224 252
658 686
Europe and rest of the world
Portugal 133 136
Others 89 52
222 188
United Kingdom 20 24
2,205 2,038
2. Non-current assets exclude investments in joint ventures, deferred tax
assets, and financial and other non-current assets
3. 2021 numbers have been restated to reflect the allocation of goodwill to
the relevant operational countries by reclassifying $57 million from the
United Kingdom to the United States. Previously, this goodwill was allocated
to the holding companies in the United Kingdom
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. Exceptional items have been recognised in accordance with
our accounting policy outlined in Note 1, the details are presented below:
Injectables Branded Generics Unallocated Total
2022 $m $m $m $m $m
Exceptional items and other adjustments
Gain from investment divestiture - - - 5 5
Reorganisation costs SG&A (2) (2) (9) (1) (14)
Impairment charge on property, plant and equipment and right-of-use assets Other operating expenses (4) - (76) - (80)
Impairment charge on intangible assets Other operating expenses (8) - (93) - (101)
Intangible assets amortisation other than software SG&A (43) (8) (41) - (92)
Unwinding of acquisition related inventory step-up Cost of sales (26) - (1) - (27)
Remeasurement of contingent consideration Finance income - - - 26 26
Unwinding of contingent consideration and other financial liability Finance expense - - - (4) (4)
Exceptional items and other adjustments included in profit before tax (83) (10) (220) 26 (287)
Tax effect Tax 69
Impact on profit for the year (218)
Exceptional items
- Gain from investment divestiture: represents $8 million from
reclassification of translation gains previously included in other
comprehensive income and the $3 million loss on disposal of Hikma Liban
S.A.R.L.
- Reorganisation costs: $14 million of reorganisation costs relate to a
one-off global restructuring to align staffing levels with current business
conditions. Management expects to finish the restructuring in 2023
- Impairment charge on property, plant and equipment and right-of-use
assets: $80 million of impairment charge relates to excess capacity and the
rationalisation of the R&D pipeline associated production lines mainly in
the Generics CGU, in addition to the impairment of generic Advair Diskus® CGU
related property, plant and equipment (Notes 9 and 10)
- Impairment charge on intangible assets: $101 million impairment charge
mainly relates to the generic Advair Diskus® CGU, other product related
intangible assets and marketing rights mainly resulting from decline in
performance and forecasted profitability and the rationalisation of the
R&D pipeline in the Generics CGU (Notes 9 and 16)
- Intangible assets amortisation other than software: $92 million intangible
assets amortisation other than software
- Unwinding of acquisition related inventory step-up: $27 million unwinding
of acquisition related inventory step-up reflects the unwinding of the fair
value uplift of the inventory acquired as part of Custopharm Topco Holdings,
Inc. business combination and the Teligent Inc. Canadian assets acquisition
($25 million and $2 million, respectively) (Note 16)
- Remeasurement of contingent consideration finance income 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 of contingent consideration and other financial liability
finance expense 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
Tax effect
- The tax effect represents the tax effect on pre-tax exceptional items and
other adjustments which is calculated based on the applicable tax rate in each
jurisdiction
In the previous year, exceptional items and other adjustments were related to
the following:
Injectables Branded Generics Unallocated Total
2021 $m $m $m $m $m
Exceptional items and other adjustments
Intangible assets write-down Other operating expenses (1) (11) (1) - (13)
Impairment reversal of product related intangibles Other operating income - - 60 - 60
Impairment of product related intangibles Other operating expenses (10) - (14) - (24)
Intangible assets amortisation other than software SG&A (33) (10) (30) - (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 (44) (21) 15 16 (34)
Tax effect Tax 5
Impact on profit for the year (29)
Exceptional items
- Intangible assets write-down: $13 million write-down of software
represented year 2020 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 year 2020 was not material
and therefore the application was not retrospectively applied and was
recognised in 2021 consolidated income statement as an exceptional item
- 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: $73 million intangible
assets amortisation other than software
- Remeasurement of contingent consideration finance income of $29 million
represented 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 represented 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
Tax effect
- The tax effect represented the tax effect on pre-tax exceptional items and
other adjustments which is calculated based on the applicable tax rate in each
jurisdiction
6. Tax
2022 2022 2022 Reported 2021 2021 2021 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
Current tax
Current year 121 (16) 105 114 (7) 107
Adjustment to prior years (1) - (1) (13) - (13)
Deferred tax
Current year (5) (53) (58) 20 2 22
Adjustment to prior year (4) - (4) 8 - 8
111 (69) 42 129 (5) 124
UK corporation tax is calculated at 19.0% (2021: 19.0%).
The Group incurred a tax expense of $42 million (2021: $124 million), the
effective tax rate is 18.0% (2021: 22.8%). The reported effective tax rate is
lower than the statutory rate due to the change in earnings mix, primarily as
a result of the impairment in the Generics business in the US.
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:
2022 2021
$m $m
Profit before tax 233 544
Tax at the UK corporation tax rate of 19.0% (2021: 19.0%) 44 104
Profits taxed at different rates 4 7
Permanent differences:
- Non-deductible expenditure 3 5
- Other permanent differences 2 2
- Research and development benefit (5) (6)
State and local taxes (2) 7
Temporary differences:
- Rate change, tax losses and other deductible temporary differences for which (5) 5
no benefit is recognised
Change in uncertain tax positions 10 2
Unremitted earnings (4) 3
Prior year adjustments (5) (5)
Tax expense for the year 42 124
Profits taxed at different tax rates relate 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 include items for which it is not appropriate to
recognise deferred tax.
The change in the uncertain tax positions relates to the balance the Group
holds in the event a revenue authority successfully takes an adverse view of
the positions adopted by the Group in 2022 and prior years, and primarily
relates to transfer pricing adjustment. As at 31 December 2022, the Group's
uncertain tax positions amounted to $50 million (2021: $44 million). The Group
released $3 million in 2022 (2021: $ nil million) due to the statute of
limitations and released $2 million (2021: $7 million) following closure of
tax audit with no final tax adjustments required by the relevant tax
authorities. This was offset by new provisions and updates of $15 million
booked in 2022 (2021: $9 million) arising from new and ongoing tax audits. $3
million of the reported balance is no longer considered as uncertain tax
position (2021: $nil million) and had no impact on the consolidated income
statement. The currency exchange difference for the year is a $1 million
reduction (2021: $1 million reduction) to the aggregate balance. In 2023, no
provision is expected to be released due to the statute of limitation or
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 year'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 uncertain tax positions' above.
Global minimum tax
During 2021, the OECD published a framework for the introduction of a global
minimum effective tax rate of 15%, applicable to large multinational groups.
On 20 July 2022, HM Treasury released draft legislation to implement these
'Pillar 2' rules with effect for accounting periods beginning on or after 31
December 2023. The Group is reviewing these draft rules to understand any
potential impact.
US Section 174 Update
Effective 1 January 2022, section 174 rules in the US require taxpayers to
capitalise and amortise specific research or experimental expenditures over a
period of five years (attributable to domestic research) or 15 years
(attributable to foreign research). Previously, such expenditures were
deducted in the year paid or incurred.
Implementation of UAE Corporation Tax Law and application of IAS 12 Income
Taxes
On 9 December 2022, the UAE Ministry of Finance released Federal Decree-Law
No. 47 of 2022 on the Taxation of Corporations and Businesses to enact a
Federal corporate tax regime in the UAE. The Corporate Tax regime will become
effective for accounting periods beginning on or after 1 June 2023. Generally,
UAE businesses will be subject to a 9% corporate tax rate, while a rate of 0%
will apply to taxable income not exceeding a particular threshold to be
prescribed by way of a Cabinet Decision (expected to be AED 375,00 based on
information released by the Ministry of Finance). On the other hand, no
Corporate Tax shall be imposed on a Qualifying Free Zone Person/Entity.
However, there are a number of significant decisions that are yet to be
finalised by way of a Cabinet Decision, including the threshold mentioned
above, that are critical for entities to determine their tax status and the
amount of tax due. Therefore, pending such important decisions by the Cabinet,
the Group has determined that the Law was not practically operational as at 31
December 2022, and so not enacted or substantively enacted from the
perspective of IAS 12 - Income Taxes. The Group shall continue to monitor the
timing of the issuance of these critical Cabinet Decisions to determine its
tax status and the applicability of IAS 12 - Income Taxes. The Group is
currently in the process of assessing the possible impact on its financial
statements, both from current and deferred tax perspective, once the Law
becomes substantively enacted.
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 Paid in
2022
2021
$m $m
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 December 2021 of 36 cents (31 December 83 78
2020: 34 cents) per share
Interim dividend during the year ended 31 December 2022 of 19 cents (31 42 42
December 2021: 18 cents) per share
125 120
The proposed final dividend for the year ended 31 December 2022 is 37 cents
(2021: 36 cents).
The proposed final dividend is subject to approval by shareholders at the
Annual General Meeting on 28 April 2023 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 2022 (220,235,852), the final dividend
would be $81 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 potentially dilutive 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.
2022 2022 2022 2021 2021 2021
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 406 (218) 188 450 (29) 421
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. Treasury shares have no right
to receive dividends.
The numbers of shares used in calculating basic and diluted earnings per share
are reconciled below:
2022 2021
Number Number
Number of shares m m
Weighted average number of Ordinary Shares for the purposes of basic EPS¹ 224 231
Effect of potentially dilutive Ordinary Shares:
Share-based awards 1 2
Weighted average number of Ordinary Shares for the purposes of diluted EPS 225 233
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
2022 2022 2021 2021
Core
Core
Reported
Reported
EPS
EPS
EPS EPS
Cents Cents Cents Cents
Basic 181.3 83.9 194.8 182.3
Diluted 180.4 83.6 193.1 180.7
9. Goodwill and other intangible assets
The changes in the carrying value of goodwill and other intangible assets for
the years ended 31 December 2022 and 31 December 2021 are as follows:
Goodwill Other intangible assets
Product related Software Other identified intangibles Total
intangible
assets
$m $m $m $m $m
Cost
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 1 January 2022 693 1,056 142 257 2,148
Additions - 48 1 36 85
Disposals - - - (3) (3)
Translation adjustments (15) (5) (2) (5) (27)
Acquisition of subsidiaries (Note 16) 119 251 - - 370
Balance at 31 December 2022 797 1,350 141 285 2,573
Accumulated amortisation and impairment
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 1 January 2022 (408) (650) (91) (107) (1,256)
Charge for the year - (75) (8) (17) (100)
Impairment charge - (72) (1) (29) (102)
Translation adjustments - 4 2 3 9
Balance at 31 December 2022 (408) (793) (98) (150) (1,449)
Carrying amount
At 31 December 2022 389 557 43 135 1,124
At 31 December 2021 285 406 51 150 892
Of the total intangible assets other than goodwill, $115 million (2021: $132
million) are under development and not yet subject to amortisation.
The addition of product related intangible assets during the year mainly
relates to the acquisition of the Canadian assets of Teligent Inc (Note 16).
Goodwill
Goodwill represents the excess of the aggregate of consideration,
non-controlling interest and any fair value of previously held equity interest
over the fair value of the identifiable net assets acquired (including
acquired contingent liabilities). Goodwill is allocated at acquisition to the
CGUs that are expected to benefit from that business combination. The goodwill
of $119 million arising from the acquisition of Custopharm Topco Holdings,
Inc. has been allocated to the Injectables CGU reflecting the integration of
the business, as Custopharm Topco Holdings, Inc. will not be able to generate
cash inflows that are independent from the injectables CGU (Note 16).
The carrying amount of goodwill has been allocated as follows:
As at 31 December
2022 2021
$m $m
Branded 160 170
Injectables 229 115
Total 389 285
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.
CGUs
Details related to the discounted cash flow models used in the impairment
tests of the CGUs are as follows:
Valuation basis, terminal growth rate and discount rate Valuation basis Terminal growth rate (perpetuity) Discount rate
2022 2021 2022 2021
Branded VIU 2.2% 2.4% 17.7% 15.4% Pre−tax
Injectables VIU 1.6% 2.1% 12.0% 10.2% Pre−tax
Generics FVLCD 2.1% 2.3% 9.1% 8.0% Post−tax
Generic Advair Diskus®(1) FVLCD -¹ -¹ 9.1% 8.0% Post−tax
Key assumptions Projected cash flows based on:
- 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
experien
ce,
adjusted
for
expected
changes
in the
future
Establis
hing the
launch
date and
probabil
ity of a
successf
ul
product
approval
for
pipeline
products
Terminal
growth
rates
and
useful
lives
are
based on
the
Group's
experien
ce in
its
markets
Discount
rates
for each
CGU are
derived
from
specific
regions/
countrie
s
Period of specific projected cash flows 5 years
1. generic Advair Diskus® has a remaining useful life of 14 years (2021: 15
years)
The Group performed its annual goodwill and CGU impairment test by calculating
the recoverable amount based on 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. These values are then
compared to the carrying value of the CGUs to determine whether an impairment
is required. In addition, the Group models sensitivities on the recoverable
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 headroom1 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
assuming zero terminal growth rate and in all cases sufficient headroom
exists.
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.
The Group evaluated the generic Advair Diskus® CGU recoverable amount based
on a FVLCD model, being the higher value compared to VIU. The evaluation
resulted in an impairment of $75 million ($59 million was allocated to
intangible assets and $16 million to property, plant and equipment on a
pro-rata basis (Note 10)) due to the decline in performance and forecasted
profitability, bringing the revised carrying value to $75 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.
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 a further impairment
charge against the generic Advair Diskus® CGU of approximately $4 million and
$7 million, respectively.
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; such a scenario had a
minimal impact on the recoverable amount of all CGUs.
1. Headroom is defined as the excess of the recoverable amount, over the
carrying value of a CGU
Product-related intangible assets
In-Process Research and Development (IPR&D)
IPR&D consists of pipeline products of $22 million mainly related to the
injectables CGU. 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 $8 million in the Injectables CGU mainly due to the discontinuation
of certain products (2021: $9 million in the Injectables CGU).
Product rights
Product rights consists of marketed products of $533 million (2021: $400
million) includes one product in the Injectables CGU of $140 million, in
addition to generic Advair Diskus® of $97 million (2021: $173 million). The
product rights have an average estimated useful life of 12 years.
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 2022, the result of this testing was an impairment
charge of $64 million (2021: $14 million impairment charge and $60 million
impairment reversal) of which $59 million related to the generic Advair
Diskus® intangible asset (2021: $46 million reversal) due to decline in
performance and forecasted profitability and the remaining amount of $5
million is related to the Generics CGU.
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.
Following a review of impairment indicators for software as at 31 December
2022, there was an impairment charge of $1 million (2021: $nil).
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 $138 million (2021: $150 million). The increase during the
year represents 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 2022, there was an impairment
charge of $29 million in the Generics CGU mainly due to the discontinuation
and decline in performance and forecasted profitability of certain marketing
rights contracts (2021: $1 million).
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. Property, plant and equipment
Land and buildings Machinery and equipment Vehicles, fixtures and equipment Projects under construction Total
Cost $m $m $m $m $m
Balance at 1 January 2021 636 761 130 255 1,782
Additions 18 17 7 104 146
Disposals (3) (10) (6) (10) (29)
Transfers 28 39 8 (75) -
Translation adjustment (3) (11) (1) (3) (18)
Balance at 1 January 2022 676 796 138 271 1,881
Additions 4 16 7 114 141
Disposals (1) (10) (3) (1) (15)
Transfers 74 35 11 (120) -
Acquisition of subsidiaries (Note 16) - 1 - - 1
Transfers to assets classified as held for distribution (2) - - - (2)
Translation adjustment (26) (19) (8) (2) (55)
Balance at 31 December 2022 725 819 145 262 1,951
Accumulated depreciation and impairment
Balance at 1 January 2021 (219) (434) (107) (13) (773)
Charge for the year (15) (39) (17) - (71)
Disposals 3 8 7 10 28
Impairment (1) - - - (1)
Translation adjustment 1 7 - - 8
Balance at 1 January 2022 (231) (458) (117) (3) (809)
Charge for the year (21) (47) (12) - (80)
Disposals 1 9 3 - 13
Impairment - (16) - (61) (77)
Translation adjustment 8 13 5 - 26
Balance at 31 December 2022 (243) (499) (121) (64) (927)
Carrying amount
At 31 December 2022 482 320 24 198 1,024
At 31 December 2021 445 338 21 268 1,072
Land is not subject to depreciation.
As at 31 December 2022, the Group had pledged property, plant and equipment
with a carrying value of $8 million (2021: $8 million) as collateral for
various long-term loans. This amount includes specific items in the net
property, plant and equipment of the Group's businesses in Tunisia.
As at 31 December 2022, the Group had entered into contractual commitments for
the acquisition of property, plant and equipment amounting to $40 million
(2021: $33 million).
As at 31 December 2022, the Group booked an impairment charge of $77 million
(2021: $1 million). $61 million of the impairment charge is in respect of the
excess capacity and the rationalisation of the R&D pipeline associated
production lines in the Generics CGU, in addition to $16 million of impairment
of generic Advair Diskus® CGU related property, plant and equipment (Notes 5
and 9).
11. Trade and other receivables
As at 31 December
2022 2021
$m $m
Gross trade receivables 1,128 1,107
Chargebacks and other allowances (298) (275)
Related allowance for expected credit loss (53) (51)
Net trade receivables 777 781
VAT and sales tax recoverable 32 32
Other receivables - 3
Net trade and other receivables 809 816
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 Additions, net Utilisation Translation adjustments Acquisition of subsidiaries As at
31 December 2021
31 December 2022
$m $m $m $m $m $m
Chargebacks and other allowances 275 2,344 (2,346) - 25 298
Expected credit loss allowance 51 5 - (3) - 53
326 2,349 (2,346) (3) 25 351
( )
As at Additions, net Utilisation Translation adjustments As at
31 December 2020
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
( )
At 31 December 2022, the provision balance relating to chargebacks was $204
million (2021: $201 million). The key inputs and assumptions included in
calculating this provision are estimations of 'in channel' inventory at the
wholesalers (including processing lag) of 36 days (2021: 40 days), estimated
chargeback rates as informed by average historical chargeback credits adjusted
for expected chargeback levels for new products, changes to pricing and
estimated future sales trends (including customer mix). 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 (2021: $5million), and if the overall chargeback rate of 57% (2021:
55%) increases/decreases by one percentage point the provision would
increase/decrease by $4 million (2021: $4 million).
At 31 December 2022, the provision balance relating to customer rebates was
$49 million (2021: $55 million). The key inputs and assumptions included in
calculating this provision are the historical relationship between contractual
rebate payments to revenue, past payment experience, changes to pricing and
sales levels, estimation of 'in channel' inventory at the wholesalers and
retail pharmacies and estimated future sales trends (including customer mix).
Based on the conditions existing at the balance sheet date, a ten basis point
increase/decrease in the rebates rate of 5.7% (2021: 6.5%) would
increase/decrease this provision by approximately $1 million (2021:
approximately $1 million).
12. Short-term financial debts
2022 2021
$m $m
Bank overdrafts 11 3
Import and export financing 62 58
Short-term loans 2 3
Current portion of long-term loans (Note 14) 64 48
139 112
2022 2021
% %
The weighted average interest rates incurred are as follows:
Bank overdrafts 4.78 3.21
Import and export financing(1) 5.87 6.39
Short-term loans 4.20 2.10
1. Import and export financing represents short-term financing for the
ordinary trading activities of the Group
13. Trade and other payables
As at 31 December
2022 2021
$m $m
Trade payables 291 262
Accrued expenses 171 194
Other payables 14 12
476 468
The fair value of payables is estimated to be not significantly different from
the respective carrying amounts.
14.Long-term financial debts
As at 31 December
2022 2021
$m $m
Long-term loans 644 207
Long-term borrowings (Eurobond) 494 492
Less: current portion of long-term loans (Note 12) (64) (48)
Long-term financial loans 1,074 651
Breakdown by maturity:
Within one year 64 48
In the second year 65 44
In the third year 553 37
In the fourth year 52 524
In the fifth year 401 23
In the sixth year 1 22
Thereafter 2 1
1,138 699
Breakdown by currency:
US dollar 1,068 620
Euro 31 44
Jordanian dinar 16 10
Algerian dinar 16 13
Saudi riyal - 9
Moroccan dirham 6 3
Tunisian dinar 1 -
1,138 699
The loans are held at amortised cost.
Long-term loans amounting to $1 million (31 December 2021: $0.5 million) are
secured on certain property, plant and equipment.
Major loan arrangements include:
a) $1,150 million syndicated revolving credit facility that
matures on 04 January 2027 with two extension options of one year each, one of
the extension options was exercised in January 2023 which increased the
maturity until January 2028. At 31 December 2022, the facility had an
outstanding balance of $278 million (2021: $nil) and an unutilised amount of
$872 million (2021: $870 million). The facility can be used for general
corporate purposes
b) $108 million outstanding balance at 31 December 2022 (fair
value of $98 million) related to a ten-year $150 million loan from the
International Finance Corporation that has been fully utilised since April
2020. Quarterly equal repayments of the loan commenced on 15 March 2021. The
loan was used for general corporate purposes. The facility matures on 15
December 2027
c) A $500 million (carrying value of $494 million, and fair
value of $466 million) 3.25%, five-year Eurobond was issued on 9 July 2020
with a rating of BBB- (S&P & Fitch) which is due in July 2025. The
proceeds of the issuance 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.
There was no utilisation of the loan as of December 2022. The facility matures
on 15 September 2028 and can be used for general corporate purposes
e) A five-year $400 million syndicated loan facility entered
into on 13 October 2022. The facility is partially utilised, with an
outstanding balance at 31 December 2022 of $190 million (fair value of $190
million) and an unutilised amount of $210 million. The facility matures on 13
October 2028 and can be used for general corporate purposes
2022 2021
% %
The weighted average interest rates incurred are as follows:
Bank loans (including the current bank loans) 2.96 2.83
Eurobond(1) 3.69 3.58
1. The Eurobond effective interest rate includes unwinding of discount amount
and upfront fees
15. Cash generated from operating activities
2022 2021
$m $m
Profit before tax 233 544
Adjustments for depreciation, amortisation, net impairment charges/reversals
and write-down of:
Property, plant and equipment 157 72
Intangible assets 202 61
Right-of-use of assets 13 12
Unwinding of acquisition related inventory step-up 26 -
Reclassification of translation gains on disposal of subsidiary (5) -
Loss from investment at FVTPL 2 -
Loss on disposal/damage of property, plant and equipment - 1
Gain on disposal of intangible assets (6) -
Cost of equity-settled employee share scheme 22 29
Finance income (29) (30)
Finance expense 81 69
Results from joint venture - 1
Foreign exchange loss and net monetary hyperinflation impact 20 36
Changes in working capital:
Change in trade and other receivables 4 (166)
Change in other current assets (19) 27
Change in inventories (102) 38
Change in trade and other payables 16 14
Change in other current liabilities (16) 62
Change in other provision 1 2
Change in other non-current liabilities (6) (5)
Change in other non-current assets (9) -
Cash flow from operating activities 585 767
16. Acquisitions
Custopharm Topco Holdings, Inc.
On 21 April 2022, the Group acquired 100% of the issued share capital of
Custopharm Topco Holdings, Inc. for a cash consideration of $373 million on a
debt and cash-free basis from Water Street Healthcare Partners (Water Street),
following approval from the US Federal Trade Commission.
Custopharm Topco Holdings, Inc. is the parent of five companies including two
companies with 16% and 10% non-controlling interests' ownership.
The net assets acquired in the transaction and the goodwill are provisional.
The assets and liabilities recognised as a result of the acquisition are as
follows:
$m
Product related intangible assets (Note 9) 251
Property, plant and equipment (Note 10) 1
Inventories 34
Trade receivables, net of chargebacks and other allowances 31
Cash and cash equivalents 19
Trade and other payables (6)
Other current liabilities (9)
Deferred tax liabilities (46)
Net identifiable assets acquired 275
Add: goodwill (Note 9) 119
Net assets acquired 394
Less: non-controlling interests (2)
Total consideration 392
Satisfied by:
Cash consideration 392
Less: Cash and cash equivalents acquired (19)
Net cash outflow arising from acquisition 373
The goodwill arising represents the synergies obtained by integrating
Custopharm and its R&D capabilities, adding an experienced team with a
proven ability to develop and commercialise complex sterile injectable
products into the existing business and increasing the scale of the
Injectables business. Goodwill is allocated to the Injectables CGU and is not
deductible for tax purposes.
For the non-controlling interests, the Group recognised the proportion of the
net identifiable assets and liabilities.
Acquisition related costs of $2 million (2021: $2 million) are included in the
selling, general and administrative expenses in the consolidated income
statement.
The fair value of acquired trade receivables is $31 million. The gross
contractual amount for trade receivables due is $55 million. Chargebacks and
other allowances are deducted from the gross amount to arrive at the trade
receivables balance of $31 million.
The business was acquired on 21 April 2022 and contributed $53 million
revenue, $26 million reported loss and $19 million core profit for the year
(excluding $20 million amortisation and impairment of intangible assets, in
addition to $25 million related to the unwinding of the inventory step-up). An
$8 million impairment charge was recognised as a result of discontinuation of
an IPR&D product. The decision to discontinue this product was made post
acquisition due to the launch of an existing recently approved product (Note
5).
If the acquisition had occurred on the first day of the financial year, the
acquisition would have contributed approximately $81 million to Group revenue,
$16 million reported loss and $29 million core profit (excluding amortisation
and impairment of intangible assets and the unwinding of the inventory step-up
resulting from the fair valuation of those assets).
Teligent asset acquisition
On 2 February 2022, the Group completed the acquisition of the Canadian assets
of Teligent Inc. (Teligent) and paid a cash consideration of $46 million.
The acquisition was assessed under the optional concentration test in IFRS 3
and was determined to be an asset acquisition, as substantially all the fair
value of the gross assets acquired is concentrated in a group of similar
identifiable assets. The assets acquired are substantially concentrated in
Intangible assets (product rights), with significantly the same risk
characteristics, as they relate to mature products with similar profit margins
and distribution channels (Note 9).
17. 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 $55 million (31 December
2021: $45 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 standby letters
of credit totalling $14 million (2021: $10 million) for potential stamp duty
obligations that may arise from the repayment of loans by intercompany
guarantors. It's not probable that any 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 provide for amounts
related to these legal matters if it is probable that a liability has been
incurred and an amount is reasonably estimable.
- Starting in 2016, several complaints have been filed in the United
States on behalf of putative classes of direct and indirect purchaser of
generic drug products, as well as several individual direct purchasers opt-out
plaintiffs. 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 certain Group entities
and various other defendants. The plaintiffs generally seek damages and
injunctive relief under federal antitrust law and damages under various state
laws. The Group denies having engaged in conduct that would give rise to
liability with respect to these civil suits and is vigorously pursuing defence
of these cases. At this point, the Group does not believe sufficient evidence
exists to make any provision.
- Starting in June 2020, several complaints have been filed in the
United States on behalf of both individual plaintiffs and putative classes of
direct and indirect purchasers of Xyrem® against certain Group entities and
other defendants. Currently twelve such cases are assigned to multi-district
litigation in the Northern District of California, and one case is in
California state court. 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. The Group 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, the Group does not believe
sufficient evidence exists to make any provision.
- Numerous complaints have been filed against certain Group entities
with respect to the manufacture of opioid products. Those complaints now total
approximately 837 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 courts. Seven cases have been filed in
Canadian courts; two of these were settled or tentatively settled for a total
of less than 200,000 US$ and five remain. Most of the federal cases have been
consolidated into a multidistrict litigation (MDL) 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. From time to time, we also receive subpoenas or requests for
information from government entities seeking information related to Hikma's
sale, distribution, or manufacture of opioid products. The Group denies having
engaged in conduct that would give rise to liability with respect to these
civil suits and is vigorously pursuing defence of these cases. Hikma is in the
process of finalising a settlement with the State of New Mexico in litigation
brought against Hikma and others in New Mexico state court. Hikma has also
agreed to enter into mediation with representatives of the Plaintiffs'
Executive Committee in the federal MDL. At this point, other than the amounts
described above the Group does not believe sufficient evidence exists to make
any provision.
- In November 2020, Amarin Pharmaceuticals filed a patent infringement
lawsuit against certain Group entities 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, and Amarin has
appealed the court's ruling. The Group denies the allegations and will
vigorously defend against them if necessary. The Group does not believe
sufficient evidence exists to make any provision.
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